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COVID-19 impact on investments has been “nearly erased”: Willis Re

3rd July 2020 - Author: Matt Sheehan

With markets continuing to rebound, analysts at reinsurance broker Willis Re believe that the negative impact of investments markets on re/insurer capital position has been “nearly erased.”

investmentFor the global reinsurance industry, which hit -30% when markets were bottoming in March, Willis Re now estimates the impact on capital is now only -7%.

Bottom-up COVID-19 loss announcements now stand at $6 billion, or $13 billion if companies’ projections of full-year losses are included.

This is a long way from top-down industry loss estimates of $30-100 billion, and analysts expect the bottom-up versus top-down gap to take years or the bottom-up versus top-down gap to close.

Willis Re’s comments came as part of the release of its 1st View renewals report, which found that rate inadequacy continued to drive measured rate adjustments in many lines and geographies, while primarily players were able to secure sufficient reinsurance capacity.

The most significant recent COVID-related theme has been the industry’s spate of capital raises, with Willis Re putting year-to-date COVID-19 related capital raising at $16 billion.

There has similarly been a notably rise in activity for capital-motivated reinsurance transactions, the broker added.

Putting together current asset-side hits and potential loss recognition, analysts do not currently see COVID as a capital event for the industry.

Indeed, if investment markets stay at their current level, it is estimated that the global reinsurance sector might end 2020 with a decline in capital on the order of only 8%.

But rating agencies continue to maintain a cautious stance, with S&P in particular having moved to a negative outlook on the global reinsurance sector.

S&P expects the global reinsurance sector’s return on capital to undershoot its cost of capital again in 2020, having met its cost of capital only one year in the past three.

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