A new report from Willis Re has examined the capitalization of re/insurers in the US and European markets, concluding that both have proved resilient to the challenges of the pandemic.
In the US, Willis Re found that P&C companies continued to show very strong risk-adjusted capitalization scores despite the increase in catastrophe losses and uncertain economic impact from COVID-19.
The P&C companies rated by AM Best had a median BCAR score of 55.7% at the 99.6% VaR which remains in 2020 well above the 25% minimum threshold set by Best for its highest BCAR assessments.
Meanwhile, the NAIC’s RBC score did not change much in 2020 and continued to reflect a highly solvent industry overall.
P&C Industry surplus increased 7.5% over 2019 levels as pre-tax operating income was up 4.4%, and the combined ratio for the industry was 98.6% aided by the reduction in insured exposures prompted by stay-at-home orders and government-ordered business closures.
In Europe, Willis Re likewise reported that the re/insurance sector’s solvency remained strong at 202% for year-end 2020, which was only marginally below the 206% from the previous year.
However, the decline in already low interest rates continues to weigh on solvency, offsetting the support to shareholders’ equity provided by improved pricing, reduced P&C loss frequency, and unrealised gains due to the recovery in investment markets, the broker warned.
Yet despite these challenges capital continues to flow readily into both markets, driven by attractive pricing, particularly for reinsurance and commercial insurance lines of business, although in some cases exposure to COVID-19 related claims has been a factor.
According to Willis Re, capital raising by global re/insurers totaled approximately $20 billion in 2020 and has continued in 2021, with $4 billion has been raised YTD and a further $2 billion being contemplated or in progress.
“We haven’t had a hard market as overall capital levels have remained robust,” analysts noted. “Interest rates are also significantly lower meaning that return on capital targets are reliant on technical profitability. As a result, there is notable fluidity of capital entering and leaving the market depending on the degree of perceived opportunity.”