The reinsurance sector is facing “a whole new layer of uncertainty” created by the pandemic, Aon says in its latest June/July market outlook.

While capacity was generally available for the June-July renewals, reinsurers have reduced exposure to the pandemic and other risks such as the hurricane season, after many made losses in the first quarter.

The inclusion of communicable disease exclusions in Property lines was prevalent for all major renewal discussions, Aon says. Reinsurers also moved to curtail some of the coverage expansion that had been achieved at previous renewals.

“COVID-19 has already undermined earnings for 2020,” Aon said. “[It] has exacerbated many of the pressures that were already in the market and added a whole new layer of uncertainty.

“There are still many variables between now and the year-end, not least the ultimate timing, scale and distribution of pandemic-related losses, the reaction of the capital markets to any further major waves of the virus and the extent of any additional major loss activity.

“In this environment, the ‘modest but progressive’ tightening of reinsurance capacity that we forecast at the beginning of the year has been accelerated. It remains to be seen whether the volume of new capital that enters the market between now and the year-end is sufficient to influence these dynamics.”

For another Property risk, peak peril sensitivity, loss development in peak zones like Florida and Japan continue to drive the terms, conditions and pricing of reinsurers’ retro programs.

While the areas have always been among the largest consumers of reinsurers’ capital, large catastrophe losses in recent years have created “an environment of heightened sensitivity” with reinsurers building strategies to develop partnerships and deploy their capital.

Estimates from Aon show the 18 reinsurers that are covered by its Reinsurance Aggregate report made a pre-tax loss of $US3.8 billion ($5.4 billion) in the first quarter, including $US3 billion ($4.3 billion) in recognised COVID-19 linked losses.

Global reinsurance capital in the March quarter fell 6% to $US590 billion ($838 billion), dragged down by a 6% drop in traditional capital to $US499 billion ($709 billion) and 4% decline in alternative capital to $US91 billion ($129 billion).

The first half of the year produced $US26 billion ($37 billion) in property catastrophe losses, Aon says, and the figure could potentially worsen amid forecasts for an above-normal Atlantic hurricane season.

The six-month season, which started on June 1, has already seen at least four named storms before the peak months of August, September and November.

“Forecasters continue to signal the likelihood of an active season,” Aon says. “The larger question, as always, is where the storms that develop will ultimately track.

“It only takes one significant landfalling storm to entirely alter the perception of a season.”