The COVID-19 pandemic clearly presents significant challenges to insurers, but it is also becoming increasingly clear that (re)insurers are likely entering a far more favorable underwriting environment. After years of relative stability brought about by strong capitalization, the landscape for the sector has undeniably changed, with pressure on the asset side of balance sheets coinciding with high natural catastrophe losses, shrinking reserve cushions and social inflation, according to Ed Hochberg, Head of Global Risk Solutions at Guy Carpenter.
Because of the resulting pressure on the sector’s balance sheet, industry observers are predicting hard market conditions, the extent of which we have not witnessed since the early 2000s. These market dynamics are leading companies to think about how to manage capital in order maximize opportunities. As such, many carriers are looking to reduce the amount of capital dedicated to supporting loss reserves for prior years; by doing so, this capital can be redeployed to more attractive current and future underwriting opportunities.