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Webinar: Reinsurance supply may dry up amid virus uncertainty

Insurance Day Webinar examines critical trends in industry’s response to crisis

Reinsurance capacity supply could reduce towards the end of the year amid rising demand and increased pressure on the availability of retro solutions, according to panellists on Insurance Day’s Covid-19 webinar.

Ann Haugh, president of global markets at Axis Re, said clients were already reluctant to advise on their estimated Covid-19 losses, causing uncertainty for their reinsurers and putting themselves at a disadvantage in renewals. 

“There is a natural reporting lag on the reinsurance side that can create uncertainty,” Haugh said. “Those clients who are able to come out early with a very clear Covid-19 response and are able to differentiate themselves will be the ones that gain access to the supply of reinsurance capacity that is currently out there, as it may not be there later in the year.”

Expectations of a rise in reinsurance demand has been one of the key themes to emerge during the first-quarter earnings season as primary insurers look to de-risk.

“At the moment reinsurance demand is there, but clients are much more critical around counterparty credit risk and making sure reinsurers will be financially viable,” Haugh said.

“There was more opportunity in the first quarter than expected from a reinsurance perspective, but the supply may reduce particularly towards the end of the year when retro solutions become less attractive and this could impact the property catastrophe market.”

Paul Brand, deputy chief executive of Convex, also acknowledged there was increased demand for reinsurance products with a shortage of capacity in the market.

“A number of companies are buying more cover, which will cause prices to continue to increase,” he said.

Brand said it was important insurers and reinsurers continue to offer cover in the aftermath of Covid-19, and said it was likely more focus would be placed on wordings for specialty risks to ensure the meet the ‘necessary standards’.

“We need to have greater clarity of coverage. Disputes between carriers and policyholders is not good news – the way to avoid that is by doing the work at the beginning rather than letting lawyers do the work at the end,” he said.

Negative media coverage of the industry’s response to Covid-19, particularly related to the denial of business interruption claims, has placed the insurance sector under increased scrutiny.

Katherine Coates, partner at Clifford Chance, told the webinar insurers will “have to work hard if they are not to be seen as villains of the piece”.

“Insurers have to be seen to solve the problems they can solve,” she said. “Reputation will also be affected by how the industry responds in the future, and what happens at renewals, particularly around whether products are going to be withdrawn and whether new exclusions will be applied.”

Several commentators have already suggested broad pandemic and virus exclusions are already being included in policy wordings in response to Covid-19.

“There is scope for the industry’s reputation to be hit beyond the initial period,” Coates said. “Over the longer term, the industry will need to step up and play its part but it can’t do this on its own.”

There was broad support among the panel for the creation of public-private partnerships to better manage pandemic risk in the future.

Richard Dudley, chief executive at the Global Broking Centre at Aon Risk Solutions, said insurers will also have to contend with a dramatically changing client base.

“Some client groups will have seen their businesses shrink dramatically, some won’t exist anymore, and some will be changing in shape and how they view risk," he said. “Our job in the London international market for many years has been to innovate. We will now have to focus on clients and what their demands are. And as we approach renewals, some clients will find it difficult to predict the size and shape of their own business over the next 12 months.

The webinar was hosted by Insurance Day deputy editor, Lorenzo Spoerry, in association with Clifford Chance.

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