London,Dec 09:
Willis Re in its latest report has said capital-raising by the reinsurers has picked up again and an estimated $6b raised thus far in Q4. This takes our YTD tally to $19b, with a further $3b being contemplated and/or in progress.
Recent capital raises have been largely motivated by the strengthening pricing environment, particularly for reinsurance and commercial insurance lines of business. Also the reinsurers require balance sheet bolstering due to COVID-19 loss exposure also continued during the quarter.
“Looking ahead we may see further required capital raises as pending legal rulings on COVID-19 related claims are reached. Capital raising is likely to remain a high-profile topic but, for context, global reinsurers returned to shareholders three times more than they raised in the first half of 2020,'' said the report by Willis Re’s Strategic and Financial Analytics teams
In the first nine months of 2020 the global (re)insurers which Willis Re track booked $20b of COVID-19 related losses. This remains considerably below the c.$68b mid-point of top-down loss estimates for the global non-life industry. More is coming with Q4 results with, for example, Munich Re announcing on 1 December that it will book an additional c.€1.1b, said the report.
A number of (re)insurers have included a significant Incurred But Not Reported (IBNR) component in their booked losses due to considerable uncertainty around ultimate COVID-19 losses. This uncertainty is due in part to pending legal rulings, particularly in relation to business interruption (BI) covers, which will decide if and how COVID-19 related claims should be covered.
One notable recent ruling was that taken by the Supreme Court of New South Wales on 18 November which determined that COVID-19 related BI claims should not be excluded under certain policy wordings. This prompted IAG to advise that it will recognise an AUD 865m after-tax provision and launch a capital raise of up to AUD 750m. The likelihood of significant COVID-19 losses arising from future underwriting years has been reduced by the introduction of exclusionary policy wording by (re)insurers.
“When we look at losses booked by individual companies, we again see the slow pace of COVID-19 loss emergence; c.80% of the (re)insurers which we track booked losses of less than 5% of 2019 shareholders’ equity in the first nine months of 2020,'' said Willis Re.
With lockdown periods ending throughout the summer, the effects of pricing changes can now be seen affecting premium volumes (in comparison to prior year same quarter), especially in Other (Commercial) Liability, said the report..
“Fourth quarter would show this more clearly across more lines if we could assume a full and continuing return to normalcy,'' added thereport..
However, second-wave lockdowns beginning in some locations now will suppress this, and if the anticipated spike causes more widespread lockdowns, then the uptick in Q3 will be only a blip in a continuing decline, especially in those lines that are highly sensitive to lock-down or economic conditions. e.g Personal Auto, Workers Compensation, or Medical Professional Liability.
While a reduction in full year 2020 GDP continues to be forecasted, the US P&C market has, however, experienced periods of hard market pricing where premium growth significantly outpaced GDP growth. From 2021, many commentators, including the IMF cited in the graph below, expect GDP in the major economies to rebound.