According to a report from S&P Global Ratings, the global reinsurance sector has generated weak underwriting results in the past four years, from 2017-2020, with this current year shaping up to also be below-par, leading the ratings agency to stay negative on the industry.
S&P noted that the industry continues to suffer from higher-frequency and severity natural catastrophe losses, fuelled by rapid urbanisation and climate change.
In addition, this year is likely to be the fifth in a row in which the top 21 global reinsurers rated by S&P exhaust their annual natural catastrophe budgets, all of which sees it maintains its negative outlook on the global reinsurance sector for 2022.
The report also explained how the COVID-19 pandemic has further worsened industry losses, especially among the top reinsurers.
Unexpected lockdowns dramatically affected the economic and ultimately global pandemic insured losses.
The report showed that of reinsurers’ COVID-19-related booked reserves, up to 80% are mostly incurred but not reported losses and include lines of business such as business interruption, event cancellation, credit (including trade credit, surety, and mortgage), mortality, professional liability, travel, and general liability.
The bulk of the total P&C reinsurance pandemic losses were booked in the second quarter of 2020,
followed by an uptick in the fourth quarter and smaller amounts in the first half of 2021. Life reinsurance COVID-19 losses were first reported in second-quarter 2020 and continued to affect quarterly results through the second quarter of this year.
The rating agency believes that the overall conditions are still fluid, as COVID-19-related industry losses could further develop over the next few quarters, especially in the life reinsurance segment given highly contagious variants of the virus.
Taoufik Gharib, credit analyst, S&P commented: “However, the industry still faces secular challenges and competitive market dynamics, remaining fragmented as it battles the commoditisation of its business.
“Once a competitive advantage, capital now is viewed as a relatively cheap commodity because of the influx to the sector from non-traditional sources, sustained by dovish monetary policies.
“Reinsurers have also struggled to earn their cost of capital, and 2022 could follow the same trend. As a result, we maintain our negative outlook on the global reinsurance sector.”
