In its latest market segment report, global ratings agency AM Best has said that life reinsurance carriers remain well capitalised withstanding pressures surrounding COVID-19.
The report states that COVID-related life claims emerged much later for global life reinsurers, than it did for non-life reinsurers, with claims surging in late 2020 and 2021.
It was also reported that losses related to mortality risk were heavily concentrated in the US, which mostly affected the five largest European and US- based reinsurers – Swiss Re, Munich Re, Hannover Re, SCOR and RGA.
However, the life reinsurers were unable to quickly adjust their pricing or policy terms and conditions, meaning that COVID-related mortality claims will “be a drag on their earnings for some time.”
But AM Best said in the report that it expects the impact of COVID-19 life claims on most reinsurers to be a “manageable earnings drag”, which is unlikely to result in any significant ratings downgrades.
In addition, the report showed that COVID-related life/health losses for the top global reinsurers accounted for just over 20% of 2020 booked COVID losses.
Furthermore, the global reinsurance market containing “strong established global players” was another key factor that AM Best addressed.
The agency said: “The global reinsurance market is concentrated, with a relatively small number of large players holding the majority of market share. Relationships built over many years offer a competitive advantage that new entrants cannot easily replicate.”
As life reinsurers generally participate in the product development and underwriting functions of the primary insurer, they are often viewed as business partners that offer services beyond risk transfer solutions.
The report also highlighted how despite the pandemic, and in light of their strong market positions, the leading life reinsurers have been able to maintain and moderate premium growth and reliable earnings from their seasoned mortality books of business.
Healthy risk-adjusted capitalisation was also addressed within the report.
AM Best said that the leading life reinsurance carriers remain well capitalised and that their risk-adjusted capitalisations are expected to remain healthy in 2022, “despite excess mortality, heightened investment, volatility, and inflation in the wake of the pandemic.”
The report also reflects on how global life reinsurers rely on the property and casualty (P&C) business to balance earnings, and how life reinsurers have historically been less exposed to financial market risk compared to the primary writers.
AM Best said: “Solid asset-liability matching is a key element of the ERM frameworks of the life reinsurers, whose asset portfolios tend to be dominated by longer-duration, fixed income securities of high credit quality.
“We expect their strong capital buffers to be able to absorb potential asset re-evaluations in 2022, should we see a return to more volatile investment markets.”