General Insurance Article - Reinsurers earnings recover from market volatility

DBRS Morningstar released a commentary titled “Reinsurers' H1 2020 Earnings Recover From Q1 Market Volatility, But Underwriting Results Are Under Pressure” that discusses the mid-year 2020 results of a select sample of large global property and casualty (P&C) reinsurance companies.

 The majority of P&C reinsurance providers have reported half year results for 2020, and it is apparent that many have recovered from the effects of the financial market's volatility that followed the lockdown of global economies in the first quarter of the year due to the Coronavirus Disease (COVID-19) pandemic. A review of half-year results for a selection of large reinsurers shows that most of them reported positive net earnings for Q2 2020 compared with negative net earnings in Q1 2020. This resulted in almost half of the companies being able to overcome the losses reported in the first quarter of 2020, by posting positive net earnings on a year-to-date basis for the first half of 2020 as equity markets rebounded globally. However, underwriting income deteriorated, driven partly by provisions for potential coronavirus- and natural catastrophe-related losses.

 The key highlights include:
 -- Global reinsurers experienced higher combined ratios in H1 2020, as evidenced by larger underwriting losses compared with the prior year due to coronavirus and provisions for natural catastrophe claims;
 -- The rebound of equity markets positively affected reinsurance companies' results in Q2 2020, and they were able to recover most of the investment losses suffered in the first quarter of the year;
 -- In DBRS Morningstar's opinion, the remainder of fiscal year 2020 will be challenging for reinsurers but underwriting losses should remain an earnings event without having a major impact on their already strong capitalization levels.

 “These companies seem to have recovered well from the shocks caused by the pandemic, but there are still some headwinds on the horizon, such as the ongoing U.S. Atlantic Hurricane season, which is expected to have above-average activity this year,” says Victor Adesanya, Vice President, Insurance.

 “In our view, one of the major challenges ahead for P&C reinsurers is the treatment of business interruption losses by courts of law in different jurisdictions. Although the original intention of most business interruption policy wordings was to exclude losses due to pandemics, there is still debate about the interpretation of these policies and this could have consequences for reinsurers.”

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