Despite an improving and hardening market environment, reinsurers were faced with a myriad of challenges throughout 2020 as catastrophes and COVID-19 added to existing adverse sector trends, leading S&P Global Ratings to maintain its negative stance on the global reinsurance industry.
Back in May 2020, S&P turned negative on the reinsurance sector as rising claims in property and casualty (P&C) lines from the pandemic stressed underwriting performance against a backdrop of fading investment returns in the low interest rate environment.
Overall, S&P feels that the reinsurance sector failed to earn its cost of capital in 2020, ultimately continuing the trend of the past four years as carriers navigated significant pandemic-related losses, the most active Atlantic hurricane season on record, adverse loss trends in U.S. casualty lines, and what S&P describes as “fierce competition among reinsurers exacerbated by alternative capital”.
The ratings agency explains that it might revise its sector outlook to stable if it feels that the industry can sustainably earn its cost of capital.
According to S&P, the top 20 global reinsurance companies incurred around $15.5 billion of pandemic-related losses in 2020, the majority of which are IBNR, and with a number of players yet to report their COVID-19 hit for the fourth-quarter.
Last week, global reinsurer Swiss Re announced 2020 COVID-19 claims and reserves of a substantial $3.9 billion.
Since then, SCOR has revealed an annual hit from the crisis of around $775 million, and Munich Re of around $4.2 billion, while Hannover Re said in early February that its COVID-19 loss experience had risen to $1.44 billion for the year.
Of course, this is just the four major European reinsurers but it shows just how costly the event has been for some and how the event impacted numerous lines across the businesses.
In S&P’s mind, the combination of the pandemic losses with elevated natural catastrophes, other insurance losses and lower reserve releases, suggests the reinsurance sector “will swing to an underwriting loss for the year.”
