France headquartered global reinsurance firm SCOR noted this morning that the COVID-19 coronavirus pandemic is creating the conditions for stronger reinsurance growth, alongside positive pricing dynamics, which it puts down to a general increase in risk aversion as a result of the pandemic crisis.
In reporting its annual results this morning, SCOR revealed an increase in its own losses from the COVID-19 pandemic, lifting its total cost of COVID-19 in 2020, across its life reinsurance, property and casualty reinsurance and investments business, to EUR 640 million (around $780m).
That’s up from the roughly $601 million SCOR had previously reported its losses from the pandemic as, signalling further impacts through the final quarter of the year.
Within the life reinsurance book, SCOR pegs its pandemic losses at EUR 314 million, with claims paid of EUR 196 million as of the end of 2020. The majority of this comes from the United States, at EUR 283 million.
In property and casualty (P&C) reinsurance SCOR pegs its COVID losses at EUR 284 million, but with only around EUR 30 million actually paid.
All of this is reported net of retrocession, although how large SCOR’s recoveries due to COVID-19 have been remains unknown.
SCOR reported net income of EUR 234 million for 2020, while its premiums written rose by 1.8% across the business, 2.4% in P&C reinsurance.
However, the pandemic impacts are clear and in P&C the company just fell to a technical underwriting loss, with a combined ratio of 100.2%. This despite the natural catastrophe loss ratio falling below budget slightly, suggesting it is the COVID effects that drove the combined ratio above 100.
Denis Kessler, Chairman & Chief Executive Officer of SCOR, commented on the results, “Covid-19 is a historic shock. Pandemic risk is obviously well known to reinsurers. Infectious diseases figure prominently in the risk maps SCOR draws up each year. The study and modeling of risk was an integral part of our risk management when Covid-19 struck.”
But he noted that the modelling may have failed to appreciate the unprecedented scale of the pandemic crisis, saying, “With hindsight, we underestimated the truly global reach of such a phenomenon, as well as the critical impact of the various – unmodelable – decisions taken by governments to contain the spread of the virus, which ultimately had a major impact on the (re)insurance industry’s exposure to this crisis.
“The measures taken to contain Covid-19, particularly lockdowns, have affected all areas of economic and social life. This has become a multi-faceted crisis – health-related, social, economic, financial and even geopolitical. It has therefore impacted reinsurers, in terms of both assets and liabilities, on both the Life and P&C sides.”
Kessler went on to explain the results in more detail, “The Group has successfully passed this real-life stress test by absorbing this major shock. SCOR ended 2020 profitably and solvently. The Group’s fundamentals remain very strong, as demonstrated by the excellent results we would have recorded in the absence of Covid-19 – which cost the Group EUR 640 million in 2020 – as well as by the level of solvency achieved at the end of December. This enables the Group to pursue its active shareholder remuneration policy, with a dividend of EUR 1.80 per share for 2020 to be proposed at the Annual General Assembly. SCOR is very well positioned to benefit from the general market hardening in P&C reinsurance, as demonstrated by the excellent renewals recorded at January 1, 2021. Similarly, the Group is pursuing its development in Life reinsurance, particularly in Asia. SCOR continues to implement ts “Quantum Leap” strategic plan with determination. I would like to express my warmest thanks to the Group’s employees for having kept the company running and for delivering for all our clients during this very challenging time.”
It’s interesting that Kessler acknowledges the fact that, in many ways, the pandemic fell outside of the risk models that the insurance and reinsurance industry uses.
While it was always clear COVID would be a catastrophic event, how exactly losses would manifest was fraught with uncertainty, making any estimation of its impacts particularly challenging.
Which also goes some way to explain why society as a whole seems to have a heightened risk aversion at this time, which SCOR said today it expects to drive reinsurance market growth and deliver ongoing stronger pricing.
As we’ve been saying since the early days of the pandemic, there has been a noticeable shift in global risk perception, awareness and a resultant increase in risk aversion, all driven by the global pandemic over the last year.
As we first said back in March 2020, this elevated aversion to risk is likely to be lasting and the upshot is likely to be an increased desire to manage and transfer risk.
All of which means more risk capital will ultimately be required and opportunity is expected to grow across the insurance and reinsurance markets.
Which underpins resurgent and broadening interest in the sector at large, as evidenced by the wave of private equity capital coming into the sector, with a broadening range of investor communities seeking access to returns from reinsurance.
This is playing into more capital inflows both in the traditional reinsurance and alternative or insurance-linked securities (ILS) market segments.
Hence SCOR’s comments resonate, as one of the largest reinsurers clearly believes the effects of the pandemic are going to be more lasting in reinsurance, perhaps than the immediate loses themselves.
The company explained this morning, “Covid-19 is driving a general increase in risk aversion which in turn is driving higher demand for risk coverage throughout the world.
“On the P&C side, Covid-19 reinforces the general market hardening observed across all lines and all regions with the low yield environment an additional catalyst.”
SCOR said that it took full advantage of market conditions and the depth of its franchise at the January reinsurance renewals.
SCOR believes that effect of the pandemic may be even more pronounced on the life reinsurance side.
“Covid-19 is also creating the conditions for an epochal transformation of Life reinsurance based not only on higher awareness of the importance of Life & Health coverage, but also upon the acceleration of its use of new technologies, from underwriting to claims management,” the company explained.
The COVID-19 pandemic is likely to not just drive risk aversion and a general desire to be protected, but also opportunities for new product categories to be created, across life and P&C.
We’re seeing this in business interruption first and we’re likely to see this increasingly in life and health insurance, all of which drives a greater need for reinsurance capital and where ILS funds may have a chance to exert their capital efficiencies to take a share of the growing demand for risk transfer.