According to David Flandro, Managing Director at HX Analytics, current reserving trends in the re/insurance sector suggest that the industry has likely moved past the peak of losses from the COVID-19 pandemic.
In a presentation given alongside the company’s third quarter earnings update, Flandro noted that the impact of the second COVID wave is likely to be far less significant than the first wave, in terms of insured losses.
“Loss estimates as they stand now are largely static,” Flandro observed, comparing COVID to a “moderately large” catastrophe event.
“COVID isn’t game-changing yet in terms of losses themselves,” he went on. “But the important point to note is that COVID losses are adding to asset uncertainty as well as liability uncertainty and increasing risk premia in the sector.”
Flandro also noted that the re/insurance sector is generally attracting more capital than other sectors at present, even though the majority of carriers continue to report deteriorating underwriting losses year-on-year.
This, he suggests, is because the re/insurance industry has remained “counter-cyclical” relative to other sectors, with premiums growing in every quarter this year despite reduced economic growth expectations, driven by rising prices and increased business volume.
Turning to reserving practices, Flandro explained that trends have shown “basically flat” reserving throughout the second and third quarters of the year.
“We saw a little bit of releases in aggregate in the second quarter and a little bit of moderate strengthening in the third quarter,” he said. “When you look at individual companies they all have their individual stories.”
“But when viewed in aggregate, it looks to me like conservatism at the start of the year is now lessening as confidence grows. Insurers are capitalizing on continued rate movements and reserving adequately in light of higher rates. And capital is being used for growth. It looks like the peak of COVID losses – at least on an accounting basis – has been accounted for.”
This led Flandro to forecast a generally positive outlook for the re/insurnance sector, with companies able to focus on revising growth targets upwards, attracting capital for underwriting expansion, and enhancing the use of data.
