Reinsurance remains accretive form of capital in managing volatility
Source: Middle East Insurance Review | Oct 2020
Aon’s recent reinsurance market outlook report indicated that reinsurance remains an accretive form of capital for insurers in managing volatility even as markets continue to evolve in the wake of the COVID-19 pandemic.
Increased risk transfer over the last six months has demonstrated the value reinsurance provides to trade risks in the market actively.
Concurrently, headwinds for the industry include the evolution of COVID-19-related losses and coverage as well as trends that were emerging prior to the pandemic including reinsurer combined ratio results, social inflation, catastrophe-loss experience driven by more secondary perils and low interest rates.
Despite these challenges, the report said the market has also seen counterbalancing impacts that affect financials, but also the market’s ability to operate.
These include rebounding global reinsurance capital through 2Q, capital raises of about $8bn supporting traditional capital, quick adaptation to virtual working environments, continued adoption of efficient technology and risk transfer platforms as well as a relatively well-connected industry.
Such factors have preserved the ability to match capital with desired risk transfer and Aon expects these trends to continue for upcoming January renewals.
The broker also pointed out that some global insurers were able to effectively increase property catastrophe risk transfer throughout the last six months to mitigate the further impact of COVID-19 losses. This led to peak zone capacity being renewed in a relatively orderly fashion during the spring.
Should these dynamics persist, slight increases in demand are projected for property catastrophe through January renewals as insurers face a heightened view of risk and volatility as well as pressures from ratings agencies. M