Everest Re is expecting the reinsurance markets to remain healthy at the upcoming mid-year renewals, despite uncertainties from the COVID-19 pandemic, according to John Doucette, EVP, President and CEO of the company’s Reinsurance Division.
Speaking on a call alongside the release of Everest Re’s Q1 results, Doucette noted that the April renewals showed continued rate momentum in loss-affected and capacity constrained segments.
Everest Re reported a net income of just $16.6 million for the first quarter of 2020, down from $354.6 million in Q1 2019, mainly due to COVID-19 related expenses.
Looking ahead to the June Florida renewals, Everest Re expects rates will be affected by limited capacity, recent losses and the market’s heightened sensitivity to risk due to climate change and social inflation, as well as a strain on alternative capital.
It therefore expects to see continued upward pricing momentum in Florida along with improved terms and conditions.
“Despite the uncertainty the industry faces, we cautiously anticipate that the reinsurance markets will remain healthy for the highly rated traditional reinsurers who can deploy capacity in multiple lines of business around the world,” said Doucette. “This view is based on current reinsurance industry dynamics and the supply-demand curve.”
In terms of market supply, Doucette explained that more stable capital remains in place, while some of the opportunistic capital is exiting.
Alternative capital investors are also re-evaluating the thesis that reinsurance is a non-correlated asset class, and potential uncertainty from COVID-19 and the possibility of more trapped capital is adding to investor frustrations from the last three years of cat losses and subsequent loss creep.
And on the demand side, clients have increased reinsurance purchases for risk management and capital support, particularly as some of them come under capital or earnings pressure given the volatile markets.
Additionally, the flight to quality continues as reinsurance buyers and brokers are increasingly focused on the stability and quality of counterparties to protect program continuity and mitigate counterparty credit exposures.
“The length of the economic downturn will ultimately be a key factor impacting reinsurance demand,” Doucette stated. “These market dynamics benefit Everest as we deliver stable capacity with strong security as a long-standing client-focused partner.”
The Everest Re exec further noted that the company would be looking to pursue terms and conditions that help narrow or exclude pandemic risk at the upcoming renewals.
This, he said, will help to “mitigate, limit or exclude the potential losses going forward.”
“Everest is built to withstand volatility and uncertainty such as we’re seeing now,” Doucette concluded. “We continue to prove our resilience, our solution-driven partnerships with long-standing clients and our ability to execute through these unprecedented times.”