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6 April 2020
Reinsurance renewals in April were mostly fully placed before the impact of coronavirus escalated and without specific exclusionary language after buyers started negotiations well in advance, Willis Re says.
“This organised approach proved to be prescient in light of the COVID-19 outbreak, which started to challenge the operational model of the market in the last two weeks of March,” Global CEO James Kent says in the group’s quarterly First View report.
Renewals were completed on time as industry participants began working from home, while several reinsurers sought to impose exclusions on programs completed closer to the renewal date.
“In some cases, reinsurers achieved these exclusions but in other cases buyers have been able to provide comfort that their original policies have no exposure to COVID-19 related losses by issuing letters of understanding to reinsurers,” Mr Kent says.
The reinsurance industry is well-placed to manage the longer-term financial challenge of the coronavirus outbreak despite current volatility, Willis Re says.
“The extreme gyrations of financial markets have had a significant impact on the assets of reinsurance companies, but fortunately, the timing of the COVID-19 disruption has coincided with the global reinsurance market being in a very strong financial position supported by strict regulation.”.
The April renewal period saw significant rate increases on loss-affected accounts and “a measured approach” on loss-free contracts and less-stressed classes, following a gradual hardening over the past 12 months, Willis Re says.
Most traditional reinsurers and some insurance-linked-securities (ILS) funds were able to offer increased capacity, while some ILS funds reduced offered capacity with the message that there had been recent redemptions by investors.
Casualty renewals were again under scrutiny for loss development, while specialty classes with losses also saw reinsurers pushing hard on pricing.
“The aviation market saw price increases in excess of 20% for the first time in nearly two decades,” the report says.
AM Best says in a report that global reinsurers are well capitalised and the industry is resilient.
“We expect that any covered losses will be manageable and that relevant policy exclusions will hold up,” it says.
“Adverse impacts from the pandemic both underwriting and investment-related may act to restrain capacity, which will further support positive pricing trends that were already in motion.”