The reinsurance rollercoaster
2020 has been quite the ride so far, as the market takes stock nine months in.
By Marc Jones, Associate Editor
Imagine that COVID-19 had not come roaring out of the depths of everyone’s pandemic fears and affected the market. If this was a normal Monte Carlo week, what would we be discussing there? At the start of the year there was speculation that the market was seeing rates harden. According to Charles Whitmore, President – Global Accounts, Head of Placements Solutions Group at Guy Carpenter, certain pockets of the reinsurance market had already started to transition during the January 2020 renewals.
“January was an asymmetric renewal season in that renewal outcomes varied widely by line of business, geography and market segment,” says Whitmore. “Sections of the property cat market had already started to evolve having been impacted by prior years’ cat loss experience. Certain long-tail classes were also seeing change as a result of the twin impact of social inflation and a prolonged period of low investment yields.”
Whitmore says that since the turn of the year the reinsurance market has largely behaved in a rational and orderly fashion. Markets and specific lines of business have typically been treated according to performance, risk profile and relationships. Whitmore views this as a healthy indicator and a sign the market is working efficiently by rewarding outperformance and tightening for pockets of stress or underperformance. For example, he says that Florida Property Cat renewals on the first of June in general experienced significant price increases due to recent loss experience, whereas many International Catastrophe renewals on the first of July witnessed only small increases, and in some cases renewals were flat.
Pandemic punch
Which bring us to the Coronavirus. According to Whitmore COVID-19 has undoubtedly affected the reinsurance market.
“The COVID-19 loss is unprecedented as it had threatened to impact both sides of carriers’ balance sheets,” he says. “This has caused significant anxiety and many stakeholders to reassess their previously held notions of the correlation between catastrophe and financial risk. In addition, the insured losses arising from COVID-19 are beginning to make themselves felt - not only in the more ‘affirmative’ lines of business such as event cancellation and travel but also more gradually in the property market. The quantum of loss from these claims will be heavily influenced by judgments in test cases such as that brought by the FCA against carriers in the UK.”
Asked if he thinks that working practices will be changed permanently by COVID-19, Whitmore states that the coronavirus has permanently changed some aspects of the way in which the industry works. Indeed, he thinks that the re/insurance industry has shown it can maintain its businesses very effectively when working from a remote location and that employees do not all need to be present physically to function efficiently.
However, he does conclude with a caveat: “That said, our industry thrives on knowledge transfer and quick communication, not to mention the more engaging social element of our day-to-day work, and the best way to engender that is for us to be together. Over time I foresee a transition to a smarter and more flexible way of working, where certain team functions and external meetings are conducted in person, and others, like project work, are carried out remotely.”
