In times of economic distress, (re)insurance is typically considered by investors to be a defensive sector. This view is well merited: it has less exposure to economic cycles than other industries and has a strong track record in navigating macroeconomic and capital crises.
This is not to say the sector will be unaffected by the COVID-19 crisis. Access to capital has reduced while carriers’ assets have clearly been hit by lower interest rates, wider credit spreads and an equity crash. A fall back into recession will also hinder growth opportunities, given the long-standing correlation between economic output and premium growth.
It is nevertheless important to point out that most carriers’ investment portfolios are invested conservatively, with a predominance of (high-grade) fixed income securities and low equity gearings. Whilst investment returns are likely to drop to new lows, such conservative allocations are likely to insulate property and casualty insurance carriers from significant investment portfolio risks. The sector also remains well capitalized. Ultimately, the fundamentals of the (re)insurance market remain strong.
COVID-19 Risks Outlook: A Preliminary Mapping and Its Implications, published by the World Economic Forum with support from Marsh & McLennan, examines familiar risks that may be amplified by the pandemic and new ones that may emerge.
The report draws on survey results of nearly 350 senior risk professionals who were asked to identify their biggest concerns over the next 18 months for both the world and their business.
The likely depth and longevity of the economic fallout unsurprisingly dominates companies’ risks perceptions. These include a prolonged recession, the weakening fiscal position of major economies, tighter restrictions on the cross-border movement of goods and people, the protracted disruption of global supply chains, and an increase in cyberattacks and data fraud.
Guy Carpenter has convened a COVID-19 task force to help support clients through these extraordinary times. By leveraging the deep expertise within our firm and aggregating information from daily colleague and market interactions, we are able to provide our clients with unique perspectives across all lines of business and geographies.
As reinsurers escalate efforts to introduce COVID-19-related exclusions or wording changes to contracts on upcoming renewals, the task force is coordinating responses in a thoughtful manner focused on the best outcome for our clients. The task force is also monitoring regulatory activity for all regions and classes of business and disseminating timely and insightful thought leadership on matters such as these to help clients make the most informed decisions.