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Reinsurers to absorb large share of COVID losses: Fitch

27th August 2020 - Author: Matt Sheehan

Analysts at Fitch Ratings believe that reinsurers are set to absorb a large share of the losses stemming from the COVID-19 pandemic.

COVID-19Fitch reported a 10.4 point increase in the overall combined ratio of the reinsurance sector over the first half of 2020, which rose to an underwriting loss at 101.8% from 91.4% in the prior year.

This underwriting result includes 9.7 points of coronavirus-related incurred losses and 1.4 points of natural catastrophe and civil unrest losses.

Of the four companies in Fitch’s group to report coronavirus-related losses greater than 10% of H1 earned premium, three are in the reinsurer segment.

These include Sirius International Insurance Group, Ltd., PartnerRe and AXIS Capital Holdings Limited.

Fitch notes that performance over the second half of the year also remains uncertain due to natural catastrophe losses at the height of hurricane season and potential for further pandemic losses.

However, it acknowledged that reinsurer business fundamentals have greatly improved with recent substantial pricing actions and a swing towards more conservative terms and conditions.

PartnerRe and AXIS were the only companies in Fitch’s group to post net written premium declines over the first six months of 2020, at 14% and 4%, respectively.

But notably, these companies have been focusing on reinsurance portfolio optimization through non-renewals and decreased line sizes in an effort to reduce volatility and improve profitability.

Additionally, Fitch found that the reinsurers were the only segment to report higher unfavorable reserve development during the H1 period, increasing the group combined ratio by 1.1 points, up from 0.2 points in the prior year.

Reserve additions were particularly high at PartnerRe, analysts said, leading to a 4.9 point increase in the company’s combined ratio, partially reflecting increases in casualty claims severity from deterioration in loss costs trends.

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