With insurers facing diminishing levels of capital amid the economic fallout from the ongoing COVID-19 coronavirus pandemic, executives at Markel Corporation are anticipating heightened demand for reinsurance protection and increased pricing for the foreseeable future.
Unsurprisingly, first-quarter 2020 results announcements from insurers and reinsurers have largely focused on the current crisis.
So far, the impact has varied for companies with hits to both underwriting performance and investments, and with the economic situation remaining wildly uncertain and volatile, further pain is expected in the coming months.
But despite the impacts and uncertainty being caused by COVID-19, some market commentary has pointed to increasing demand for reinsurance protection as insurers look to de-risk and hedge their exposures.
Speaking during Markel’s Q1 2020 earnings call, Co-Chief Executive Officer (CEO) and Director, Richard Whitt, explained that as the pandemic has unfolded, demand for reinsurance has risen.
“We are seeing an increase in demand for reinsurance. Insurers capital has been reduced as a result of the fallout from the pandemic, and more importantly, risk appetite has reduced. Reinsurance, of course, is a form of capital and a way to de-risk for primary insurance companies.
“We expect increased pricing and demand for the foreseeable future in reinsurance,” said Whitt.
Whitt’s comments support the results of our recent COVID-19 Market survey, in which roughly 91% of respondents said that they expected the pandemic to result in their appetite for reinsurance or retro remaining about the same, slightly higher, or much higher. This compares with approximately 9% of survey respondents stating that the pandemic would result in either a slightly lower, or much lower appetite for reinsurance or retro cover.
Our market survey also revealed that the large majority of respondents expect the current crisis to drive more reinsurance firming, with 85% anticipating a firmer marketplace as a result of the pandemic.
During the company’s first-quarter earnings, Whitt discussed both reinsurance and primary insurance rates in light of the pandemic.
“Regarding insurance pricing, while there is reduced demand in the short to medium term, recent events only provide more evidence that rates need to increase to align with the exposures the industry insures. We are obtaining and will continue to push for rate increases and believe that our peers will as well.
“And, we continue to see month-over-month increases in rates through the end of March…On the reinsurance side, it’s a hard market. Appetite is down, demand is up, and you’re going to see more people looking for coverage and pricing is going up accordingly,” said Whitt.
For reinsurers, greater demand and at potentially higher rates will be welcomed news and will go someway to offsetting some of the negativity and stress companies are undoubtedly experiencing at this very challenging time.
Markel announced its Q1 financial results towards the end of April, revealing an underwriting loss of $325 million as a result of the ongoing COVID-19 pandemic. At 118%, Markel’s combined ratio deteriorated from the 95% posted in Q1 2019. Although, absent the inclusion of pandemic-related losses, Markel’s combined ratio would have improved year-on-year, to 94%.
