Analysts at Moody’s are expecting the coronavirus (COVID-19) pandemic to create unprecedented disruption in the global economy and to weigh heavily on reinsurers’ capital and profitability in the coming months.
Although global reinsurers entered the year with solid capital levels, investment volatility, losses from pandemic exposure and specialty P&C lines, as well as potential adverse reserve development in US casualty lines will weaken future results, the rating agency said, even as pricing remains favourable.
Moody’s expects GDP for the G20 economies to contract by 0.5% in 2020 due to COVID-19, followed by a pickup to 3.2% in 2021.
It warned that re/insurance premiums could decline if the economic slowdown is prolonged, with a sharp decline in equity markets, low interest rates, and widening credit spreads likely to weaken reinsurers’ investment portfolios, capital and earnings.
Several large reinsurers have reported their modelled exposure to the pandemic, and Moody’s is anticipating underwriting losses to emerge in non-life business lines, including event cancellation and trade credit.
Further losses could be driven by legislative efforts in some US states to provide business interruption coverage retroactively, without property damage, despite standard exclusions for viruses.
January pricing renewals were favourable for loss affected accounts and Moody’s expects this trend to continue at April renewals.
It explained that reinsurance pricing will likely remain favourable given the sizable trapped capital in the property retro market, rising loss cost trends in US casualty lines and low interest rates.
However, analysts added that reinsurers are likely to be judicious in allocating catastrophe capacity at June/July renewals given uncertain economic conditions and volatile financial markets.
Moody’s concluded by warning that a protracted economic downturn coupled with severe catastrophe losses or adverse reserve development could shift the industry outlook to negative.
