Reinsurance News

Reinsurer earnings recover after Q1 volatility: DBRS Morningstar

22nd September 2020 - Author: Matt Sheehan

The half-year results of property and casualty (P&C) reinsurers show that most firms have recovered from the effects of the financial market volatility that followed global lockdown measures in Q1, according to analysts at DBRS Morningstar.

investmentDBRS’ review of H1 results shows that most large reinsurers reported positive net earnings for Q2 2020 compared with negative net earnings in Q1 2020.

This resulted in almost half of the companies being able to overcome the losses reported in the first quarter of 2020, by posting positive net earnings for the six-month period, as equity markets rebounded globally.

However, analysts noted that underwriting income deteriorated during this time, driven partly by provisions for potential coronavirus and natural catastrophe related losses.

And there are still some headwinds on the horizon, such as the ongoing US Atlantic Hurricane season, which is expected to have above-average activity this year.

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That said, combined ratios were up on last year as some reinsurers set up significant loss reserves in anticipation of present and future coronavirus outbreaks and natural catastrophe-related losses.

DBRS believes the treatment of business interruption losses by law courts in different countries remains a major challenge, despite the original intentions of most policies to exclude pandemics.

in the UK, the Financial Conduct Authority is currently testing a sample of insurance policies in court to determine whether business interruption losses are covered following the lockdown measures implemented due to the pandemic.

Analysts anticipate that this will have a material impact on the reinsurers backing those policies depending on the decision of the court and the likely legal appeals that ensue.

In addition to the consequences of the global coronavirus pandemic, DBRS notes that reinsurers have also experienced abnormal catastrophe losses during the first half of the year due to hurricane, wildfire, and flood events around the world.

Although it is too early to fully assess, Hurricane Laura, hitting the State of Louisiana as a Category 4 hurricane could impose additional losses to global reinsurers.

However, the firm still estimates that, in the absence of very extreme weather events, underwriting losses should be limited to being an earnings event for most reinsurers in 2020.

“We anticipate that the reinsurance industry will be able to maintain its current strong capitalization in the near future as some companies issue new equity and debt while benefiting from a market that started hardening in late 2019 with this likely to continue well into 2021,” it concluded.

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