COVID-19 reinsurance market survey – March 2020

As COVID-19 profoundly influenced developments in the insurance and reinsurance industry, Reinsurance News collaborated with its ILS-focused sister-site, Artemis, to take the pulse of the market at what was a particularly challenging time.

The results of the COVID-19 Market Survey are based on responses from hundreds of market participants, of which more than half have responsibility for, or provide input to, reinsurance and retrocession buying decisions.

And while the ultimate impact of the pandemic remains uncertain, there were some clear points of consensus among respondents.

For example, nearly 85% of those who answered the survey said that they expect COVID-19 to drive more reinsurance firming.

Additionally, less than 10% of respondents reported that they expected to reduce their reinsurance or retrocession coverage following the crisis.

In contrast, roughly 60% said their appetite for reinsurance would remain about the same, while 23% said it would be slightly higher, and over 7% reported that their appetite would be much higher.

Together, these results seem to indicate that a large majority of those in the market expect reinsurance coverage to be more in demand going forward, and at a higher rate than previously.

This will no doubt offer some comfort to reinsurers who experienced another slightly disappointing renewal season, despite rate increases continuing to build some momentum.

The extent of the price firming will, however, likely depend on the scale of losses that reinsurers incur as a result of the pandemic.

Respondents to the COVID-19 Market Survey highlighted travel and cancellation & contingency lines as among those most exposed to COVID-19 losses, with investment declines and financial market volatility also likely to be major issues due to the accompanying economic slowdown.

That said, the results also show that retrocession and property and catastrophe reinsurance are considered to be the least exposed areas of the market.

With such variation between lines, the loss experience of individual firms is likely to differ considerably, although the impact on the market will still be substantial, taken in aggregate.

One thing that’s clear from the survey results, is that market participants are concerned that business interruption claims as a result of the pandemic could be forced into property lines.

We asked respondents how concerned they were that legal action was looking to force retroactive cover for pandemic business interruption, and almost 33% said they were very concerned, while almost 18% said they were extremely concerned. In contrast, just 7.6% of respondents said they were not at all concerned by this issue.

Potential for business interruption legal action also came high when ranked against other issues potentially impactful for the industry as it tackles the virus outbreak. In fact, the only issue ranked as more significant for the re/insurance sector was investment declines and financial markets.

Interestingly, the aggregation of COVID-19 claims across all lines came in third, which supports analyst commentary that for now at least, the expectation is for the investment side of the balance sheet to take more of a hit than the underwriting side.

Regarding underwriting, and almost 33% of survey respondents expect cancellation & contingency lines of business to suffer the most from the coronavirus outbreak, with survey results showing that market participants view this line as the most exposed.

Losses are also expected in travel and life / health lines of insurance and reinsurance business, as well as within the aviation space, albeit it to a lesser extent. The large majority of survey respondents expect losses within the property reinsurance and catastrophe space to be low to medium, which is the same view held for retrocession business.

Overall, nearly 85% of respondents to our April 2020 COVID-19 Market Survey expect the pandemic to result in more reinsurance firming. Furthermore, the results to the survey reveal that with less than 10% of respondents expecting to purchase slightly less or much less reinsurance or retrocession in light of the pandemic, it’s clear that the large majority anticipate that the crisis will drive up demand for protection among buyers.

For insurers and reinsurers of all shapes and sizes these are challenging and unprecedented times. Amid all of the uncertainty, this survey is designed to capture a snapshot of this historic moment, create useful data to inform actions, and take the pulse of the market at this time.