SCOR CEO Laurent Rousseau has pointed to a “disconcerting imbalance” between rising loss trends and the supply of capital into the re/insurance market.
Speaking during the company’s recent RVS event, which discussed lessons to be learnt from the COVID-19 pandemic, Rousseau acknowledged that the past few years have been “extremely costly” to the reinsurance industry in terms of catastrophe activity.
With 2021 set to also be a very significant year for natural catastrophes, re/insurers will have faced five straight years of elevated costs.
But despite this, SCOR continues to see a fairly stable stream of capital feeding into the industry.
“In that respect, there has not been a full efficiency of the market, where there is plentiful capacity in the reinsurance market,” Rousseau told attendees of the virtual RVS event.
“The rate increases that we have been seeing for the past three years are actually not driven by capacity shortage, they’re driven by the fact that insurers and reinsurers have been facing very volatile earnings and have to respond to that. And the fact that, simply put, reinsurers have not been generating cost of capital as they should have in the past few year,” he continued.
“So that disconnect between the rising loss trends and stable capacity is something that keeps us quite focused and quite disciplined, and we’ll have to be making sure that the market stays disciplined.”
Another source of losses for re/insurers over the past year and a half is the COVID-19 pandemic, which surprised many in the industry by triggering more claims on the P&C side of business, rather than life.
“We thought initially they would trigger a lot more insolvency, so credit and surety losses. And I think that was a response to more the 2008 prices,” Rousseau remarked.
“So at SCOR, when we saw COVID prices coming around we were extremely nervous about BI and credit and surety. Over time, our credit and surety exporters have reduced, and I guess they’re going to be pushed back in time. And today they focus really on the P&C side.”
However, P&C exposures were largely focused on 2020 year of accounts, as re/insurers have since sought to exclude pandemic risk from their underwriting. But this is not the case on the life side, Rousseau warns, where a resurgence in the delta variant is sparking fears of greater losses to come.
SCOR executives also drew attention to a discrepancy in the public disclosures made by insurers and reinsurers regarding their COVID claims, arguing that the figures released so far do not quite add up.
“There is a bit of a gap when you look at industry estimates, which go up to $100 billion of total exposure, and when you sum up what insurers and reinsurers together have disclosed as their COVID claims,” Rousseau noted.
“Actually, you don’t reconcile both. The macro estimates are top down so there could be some element of mistake in there. But for sure, there is a gap that will require time to be reconciled to be closed.”