Reinsurance industry to make 2020 underwriting loss – S&P Global Ratings

The global reinsurance sector will make an underwriting loss for 2020, according to S&P Global Ratings.

The rating agency in a report said the loss would be triggered by a combination of losses from the COVID-19 pandemic, elevated natural catastrophes, other losses and lower reserve releases. The top 20 global reinsurers had, so far, incurred $15.5 billion of coronavirus-related losses, mainly in the form of incurred-but-not-reported reserves, S&P Global Ratings said.

The three of Europe's big four reinsurers that have announced earnings so far — Munich Re, Swiss Re AG and SCOR SE — have all reported nonlife reinsurance combined ratios above 100% for the full 2020 year.

The rating agency said it believes the reinsurance industry did not earn its cost of capital in 2020. It has struggled to do so for the past four years because of coronavirus losses, large natural catastrophe losses, adverse loss trends in certain U.S. casualty lines and "fierce competition" among reinsurers.

The report also said price increases at the Jan. 1, renewals, although broad-based, were below reinsurers' expectations, "dashing reinsurers' hope of a strong start for 2021." The price increases seen were not enough to constitute a hard market in reinsurance, it added.

S&P Global Ratings said global reinsurance capitalization remains robust, with "no material capital destruction," but that alternative capital would remain constrained in the near term. A historic winter storm in the southern U.S., which hit Texas particularly hard, highlights the risk from unmodeled events and climate change, the report said. That will "play into alternative capital availability and reinsurance pricing," it added.

S&P Global Ratings has maintained its negative global reinsurance sector view but said it may revise the outlook back to stable if it believes the sector can sustainably earn its cost of capital.