Analysis by insurance and reinsurance broker, Willis Towers Watson (WTW), reveals that the recovery in investment markets has “completely neutralized the asset-side hit” to the capital positions of global reinsurance companies.
After some significant disruption and volatility within financial markets as a result of the COVID-19 pandemic, the capital positions of reinsurers around the world came into question as firms grappled with impacts on both sides of the balance sheet.
However, investment market recovery has been fast and as a result, capital positions for insurers and reinsurers globally are in good shape.
“The recovery in investment markets has completely neutralized the asset-side hit to global reinsurer capital positions we had estimated earlier this year,” says WTW in a recent report.
The re/insurance broker states that, since its last note on July 2nd, investment markets have continued to march higher. In fact, explains WTW, the S&P 500 is now +6% year-to-date, which compares with -30% low point in March as the outbreak intensified and governments took action.
As highlighted by Willis Re, the reinsurance broking arm of WTW, global reinsurance capital declined by just 3% in the first-half of the year. And, in light of the continued recovery in investment markets, this position should have improved during the third-quarter of the year, says WTW.
While capital positions generally remain in good shape, the broker does note that solvency ratios for the European players have been more of an L than a V.
WTW feels that U.S. companies have regained their prior year-end levels as equity markets have recovered, aided by the fact U.S. statutory accounting is less sensitive to interest rate movement.
For the European re/insurers tracked by WTW, 2020 started with an average Solvency II ratio of 211%. As at the end of Q1 2020, this declined to 192%, and only improved to 194% as at the end of Q2 2020. The main driver of this, says WTW, is the low interest rate environment.
