Covid-19 macro-economic hit the main property reinsurance driver: Aon

For the property reinsurance marketplace, the impacts of the Covid-19 coronavirus pandemic are expected to be largely driven by macro-economic factors, although some specific contracts could be at-risk of legislative efforts around inclusions, according to Aon.

In a client briefing seen by Artemis, Aon explains that property reinsurance contracts would be largely expected to follow the fortunes of cedents, rather than being exposed specifically to any particular impact of the Covid-19 pandemic.

While there is a great deal of uncertainty over the potential for business interruption claims to be forced into property insurance contracts, should that occur it is generally accepted that the industry would need government support to manage those claims.

Meaning the current thinking is that, aside from some leakage of claims where property insurance towers are poorly worded and so Covid-19 coverage is allowed, the property reinsurance market hit (including property catastrophe reinsurance) is not expected to be particularly significant.

But, outside of some claims deemed valid and any forced through, there will definitely be ramifications for the global market in property and catastrophe reinsurance, driven by the macro-economic hit to financial markets and the effect that is having on the insurance and reinsurance marketplace.

The zero-interest rate environment is one factor that Aon highlights, as this will impact reinsurer access to capital and also their pricing requirements as well.

It’s broadly expected that the financial market volatility and investment losses suffered will help to drive further need for rate firming across reinsurance over the coming months.

How long the current Covid-19 lasts will be important in defining just how much the market could firm up as a result of the pandemic, but at the least it is expected that the traditional market will have a greater desire to achieve more rate on the underwriting sides of their businesses.

While in the insurance-linked securities (ILS) market there will also be an increasing desire for more rate, the longer the crisis lasts, driven by heightened investor uncertainty and the potential for some redemption requests to be seen.

With both traditional and alternative sides pushing for property and catastrophe reinsurance rate firming there should be an increasing chance that the momentum grows, particularly should the crisis and associated lock-downs last for longer than anticipated.

With the global debt markets expected to contract, reinsurance solutions such as quota shares and other structures may prove particularly accretive to cedent capital requirements, Aon says, perhaps lifting demand a notch as well.

Reinsurance solutions can help to reduce uncertainty in cedents businesses, Aon suggests, which may prove particularly relevant under the current circumstances.

On the life reinsurance side, Aon expects that price increases will be seen for coverage including pandemics and while the market has been discussing exclusions that may evolve along with the situation, the broker said.

The broker also sees reinsurance market opportunities, with new product development likely to be something that follows the pandemic, as reinsurers try to respond to cedents newly perceived need for protection more broadly against any future outbreaks.