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Global Reinsurance Highlights 2020

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3Global Reinsurance Highlights | 2020

Global Reinsurance Highlights 2020 Edition

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4 Global Reinsurance Peer Review


Contributors

Project LeadersJohannes BenderTaoufik Gharib

ContributorsAishwarya Agarwal, PuneJohannes Bender, FrankfurtCraig Bennett, Melbourne Rachit Chauhan, MumbaiWenWen Chen, Hong KongHoyt Crance, New YorkCharles-Marie Delpuech, LondonKoshiro Emura, TokyoGiulia Filocca, LondonTaoufik Gharib, New YorkRobert Greensted, LondonJean Paul Huby Klein, FrankfurtMaren Josefs, LondonKalyani Joshi, MumbaiMarc-Philippe Juilliard, ParisMilan Kakkad, MumbaiAli Karakuyu, LondonOlivier Karusisi, ParisSaurabh Khasnis, CentennialEiji Kubo, TokyoVolker Kudszus, FrankfurtHardeep Manku, TorontoMark Nicholson, LondonDennis Sugrue, LondonEunice Tan, Hong KongMichael Zimmerman, Centennial

Data TeamPatrice Mizeski, New YorkAntun Zvonar, New York

Editorial TeamHeather Bayly, LondonJennie Brookman, FrankfurtJo Parker, TorontoRichard Smart, Tokyo

Publisher Nicholas Lipinski Tel: +44 (0) 203 301 8201 [email protected]

Managing editor Wyn Jenkins Tel: +44 (0)203 301 8214 [email protected]

Sub editor Ros Bromwich

Design & Production Garrett Fallon Russell Cox

Cover image: Shutterstock / Ellerslie

For S&P Global Ratings For Intelligent Insurer

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6 Global Reinsurance Highlights | 2020

Contents

8 Soundbites

10 Reinsurance Outlook Black Swan Or Not, COVID-19 Is Disrupting Global Reinsurers’ Profitability

18 Catastrophe RiskGlobal Reinsurers Face Threat If COVID-19 Losses Are Followed By A Major Catastrophe

25 Lloyd’s Of London Turning The Supertanker: Underwriting At Lloyd’s Market Changes Course

32 Protection GapCOVID-19 Highlights Global Insurance Protection Gap On Climate Change

37 IFRS 17Reinsurers And IFRS 17: Getting Balance Sheets Ready And On Time

40 APAC APAC’s Costly Catastrophes: Reinsurance And More Required

46 Investments Investment Caution Has So Far Paid Off For Global Reinsurers

52 North American Investment Stress Test COVID-19 Market Volatility Tests North American Reinsurers’ Resilience

59 Cat Bonds In A Correlated Market, Catastrophe Bonds Stand Out

64 Top 40 By Company

66 Global Reinsurers By Country

76 Ratings Definitions

78 Addresses


Foreword

COVID-19 Pushes Global Reinsurers Further Out On Thin IceBy Johannes Bender and Taoufik Gharib

2020 will be remembered for many reasons. The global outbreak of the COVID-19 pandemic, greater investor focus on environmental, social, and governance issues, the U.S. election, and a record number of natural catastrophes will all make their way into the history books. For the global reinsurance sector, 2020 was another tough year.

Because of significant pandemic-related losses, elevated natural catastrophe claims, and lower investment returns, the sector will again fail to meet its cost of capital. This follows three years in which the sector has struggled to meet its cost of capital due to large natural catastrophe losses, adverse loss trends in certain U.S. casualty lines, and fierce competition among reinsurers. Consequently, in May 2020, S&P Global Ratings revised its outlook on the global reinsurance sector to negative from stable, as we believe business conditions are difficult.

In our lead article Black Swan Or Not, COVID-19 Is Disrupting Global Reinsurers’ Profitability, we discuss why we revised the sector outlook to negative after the pandemic started and highlight the sector’s main challenges and opportunities with regard to pricing, growth, capital adequacy, and earnings potential.

Reinsurers have suffered significant natural catastrophe losses in recent years. In Global Reinsurers Face Threat If COVID-19 Losses Are Followed By A Major Catastrophe, we examine how reinsurers’ risk appetite has changed, and how the sector has equipped itself to face future natural catastrophes and rising COVID-19-related claims.

In Turning The Supertanker: Underwriting At Lloyd’s Market Changes Course, we take a closer look at Lloyds’s actions to improve underwriting performance, the prospects for individual syndicates, and the market’s ambitious “Future of Lloyd’s” project.

As the COVID-19 pandemic spread from region to region, it has drawn attention to a hitherto unnoticed protection gap in insured and noninsured property/casualty risks. Although the pandemic’s protection gap had not previously been recognized, other protection gaps have been raising concerns for some time. In COVID-19 Highlights Global Insurance Protection Gap On Climate Change, we analyze how reinsurers can help to close protection gaps in life, health, cyber, and natural catastrophe insurance.

The implementation of International Financial Reporting Standards (IFRS) 17 requires insurers and reinsurers—globally, but excluding those based in the U.S.—to restate their balance-sheet comparatives with new key metrics. In Reinsurers And IFRS 17: Getting Balance Sheets Ready And On Time, we discuss the main challenges for reinsurers and users of financial statements resulting from IFRS 17.

The Asia-Pacific region’s insurance and reinsurance sector has seen its fair share of weather-induced woes over the past two years. In APAC’s Costly Catastrophes: Reinsurance And More Required, we discuss regional and global reinsurer’s appetite for the region, and its main challenges and opportunities.

Given that reinsurers exist to take on insurance risks, it is not surprising that they are more exposed to underwriting, reserving, and catastrophe risks than to investment risks. However, their investment risk has never been negligible, and a decade of low interest rates and tough underwriting conditions forced reinsurers to increase their appetite for investment risk. In Investment Caution Has So Far Paid Off For Global Reinsurers, we take a look at reinsurers’ asset risk appetite over time and how the sector would be affected by several stress scenarios.

In COVID-19 Market Volatility Tests North American Reinsurers’ Resilience, we conduct an investment asset stress test for the region’s reinsurers, and outline the impact of the results on capital adequacy.

Financial markets have recently proved to be highly correlated, as the COVID-19 pandemic cut a swath through various different industries. S&P Global Ratings’ article In A Correlated Market, Catastrophe Bonds Stand Out answers questions from market participants about how the insurance-linked securities market has been faring and what could happen as the pandemic continues.

This year’s Global Reinsurance Highlights captures the key issues facing reinsurance management, investors, and other stakeholders. We hope you enjoy the 2020 edition and welcome your feedback on possible enhancements for future years.

Johannes BenderFrankfurt, (49) [email protected]

Taoufik GharibNew York, (1) [email protected]


Reinsurance OutlookTaoufik Gharib, Johannes Bender, Hardeep S Manku, and Ali Karakuyu• Once again, the global reinsurance sector won’t earn its cost of capital in 2020, just as it has struggled to do so

in the past three years. Hence, our sector outlook remains negative.• The top 20 global reinsurers reported about $12 billion in COVID-19 losses year-to-date. We now forecast that

this cohort will generate a combined ratio of 103%–108% in 2020 and 97%–101% in 2021, and a return on equity of 0%–3% and 5%–8%, respectively.

• Sector capitalization remains robust with no material capital destruction so far, benefiting from capital raises in 2020 and market recovery from March lows.

• Property and casualty reinsurance pricing has been hardening during the past 18 months in reaction to natural catastrophe and pandemic losses, as well as alternative capital and retrocession capacity constraints. We expect the reinsurance pricing positive momentum will carry into 2021.

• Life reinsurers are facing higher mortality losses caused by the pandemic, but the impact is manageable.

Catastrophe RiskCharles-Marie Delpuech and Johannes Bender• If 2020 sees insured catastrophe losses of $60 billion–$70 billion—an average level—at least eight of the top

20 reinsurers could suffer a capital event.• The investment impact of COVID-19, combined with pandemic-linked losses, have eroded the top 20 global

reinsurers’ combined catastrophe budget and earnings buffer for a severe catastrophe event in 2020 to about $14 billion, from about $32 billion.

• We expect those reinsurers less affected by COVID-19, which can afford to deploy capital, are likely to take a more offensive stand at the next renewals, while others take a more defensive tack.

Lloyd’s Of LondonRobert J Greensted and Ali Karakuyu • The Lloyd’s market’s underlying underwriting performance is continuing to improve after 10 consecutive

quarters of re/insurance rate improvement. • Syndicates have struggled to break even following several years of above-average natural catastrophe losses.

Mature syndicates have significantly outperformed less-established syndicates.• We consider “The Future at Lloyd’s” blueprint to be ambitious, with a high degree of execution risk. That said,

success will ensure the market’s relevance.

Protection Gap Olivier J Karusisi and Dennis P Sugrue• The pandemic has highlighted the need for governments to improve their economies’ resilience to big financial

shocks, like those associated with natural catastrophes and epidemic diseases. Government-backed insurance solutions, supported by the (re)insurance industry, could protect government budgets, mitigating the potential for economic instability.

• The insurance sector, especially reinsurers, has a wealth of data and experience in assessing evolving risks such as climate change. This could enable governments, companies, and individuals to make better decisions.

• For reinsurers, helping to close the protection gap—the difference between insured and total losses—may provide diversification of risk exposure and help to attract, educate, and develop new insurance markets that can provide growth potential. Ultimately, it could reinforce reinsurers’ relevance for potential new clients.

IFRS 17Volker Kudszus, Eiji Kubo, Robert J Greensted, Eunice Tan, and Mark D Nicholson• Recent amendments to IFRS 17 eliminated significant accounting mismatches for primary insurers that would

have created risks for reinsurers.• Despite this improvement, we believe the transition to IFRS 17, including the adoption of new metrics, is a

major challenge for reinsurers and users of their financial reporting.• We expect pending updates to GAAP to somewhat improve the comparability between those standards and

IFRS 17, but differences will remain.• The new metrics could affect reinsurers’ risk appetite and bring about shifts in business and financial

strategies that could, in the long term, have a ratings impact.

Soundbites


APACEunice Tan, Koshiro Emura, Craig A Bennett, WenWen Chen, and Charles-Marie Delpuech• Reinsurance protection is becoming essential, and more costly, for insurers as extreme weather events rise.• Costlier protection in markets such as Japan and Australia will eat into the underwriting margins of direct

insurers, prompting a relook at catastrophe appetites.• China’s wide gap between economic and insurance losses shows the need to raise catastrophe reinsurance

awareness and demand. • Catastrophe models are growing in importance as Asia-Pacific insurers enhance oversight of weather-induced

losses amid global warming concerns.

Investments Marc-Philippe Juilliard, Johannes Bender, Ali Karakuyu, Dennis P Sugrue, and Charles-Marie Delpuech• The stress test S&P Global Ratings performed to see how reinsurers’ capital adequacy has been affected by

the economic impact of the COVID-19 pandemic shows most of the top 20 global reinsurers would retain a smaller, but positive buffer.

• Reinsurers’ underwriting activity is, by definition, more volatile, representing about two-thirds of their capital needs, compared with an average of less than half for primary insurers.

• Although reinsurers’ appetite for asset risk is therefore smaller than that of primary insurers, persistent low interest rates prompted a shift to riskier and more illiquid assets over the past decade.

North American Investment Stress TestTaoufik Gharib, Hardeep S Manku, and Saurabh B Khasnis• COVID-19 has brought the global economy to a screeching halt, spurring unprecedented financial market

volatility and policy responses.• S&P Global Ratings’ investment stress tests have shown that almost all of its rated North American reinsurers

are able to maintain capital adequacy in line with the ratings for now. • North American reinsurers are carrying thinner capital buffers than in the past. Therefore, those with riskier

investment strategies and outsize natural catastrophe exposure are at risk if market losses intensify and 2020 ends up being an above-average catastrophe year.

• We will likely take negative rating actions if COVID-19 becomes a capital event and reinsurers aren’t able to rebuild their capitalization over the next 12 to 24 months.

Cat BondsMaren Josefs, Ali Karakuyu, and Johannes Bender• Financial markets have recently proved to be highly correlated, as the COVID-19 pandemic cut a swath

through various different industries. However, catastrophe bonds usually protect against specific perils across different regions and cover predominantly residential risks, with limited exposure to commercial business. Hence, S&P Global Ratings does not expect investors in cat bonds to suffer significant losses as a result of COVID-19 and hence future new issuance to continue.

Soundbites


Reinsurance Outlook

Black Swan Or Not, COVID-19 Is Disrupting Global Reinsurers’ ProfitabilityBy Taoufik Gharib, Johannes Bender, Hardeep S Manku, and Ali Karakuyu

When analyzing the global reinsurance sector, S&P Global Ratings reviews operating performance on a multiyear basis rather than a single year’s results because of the nature of the business, which can result in elevated losses for any given year. The industry struggled to earn its cost of capital (COC) in 2017 and 2018, and barely did so in 2019. Reinsurance pricing reacted in 2019 leading up to the January 2020 renewals, but price increases were mostly in the U.S. and Japan, confirming the regionalization of pricing trends.

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Reinsurance Outlook

global reinsurers’ capital adequacy still redundant at the ‘AA’ confidence level at year-end 2019. This cohort of companies raised close to $10 billion in capital this year, some of it to prefund upcoming maturities, and the rest is incremental capital.

Most reinsurers halted their share buybacks to bolster their balance sheets once COVID-19 became a real threat. In addition, there is a formation of a couple of startups that would like to capitalize on the hardening reinsurance pricing.

A l t e r n a t i v e c a p i t a l c a p a c i t y, especially collateralized reinsurance, will remain constrained in the near term as alternative capital providers are reeling from their capital being trapped for four years in a row and its underperformance over the past few years. Furthermore, the concerns regarding any potential leakage from business interruption into property coverage, in addition to potential opportunities in other asset classes will likely affect capital providers’ appetites.

Entering 2020, the expectations were that this year the reinsurance caravan was set on the right route and reinsurers would improve their results. However, COVID-19 losses and the ensuing market volatility became the straw that broke the camel’s back.

Once again, the sector will not earn its COC this year, bearing in mind it has struggled in the past three years to do so due to large natural catastrophe losses, adverse loss trends in certain U.S. casualty lines, and fierce competition among reinsurers exacerbated by alternative capital. Therefore, on May 18, 2020, we revised our outlook on the global reinsurance sector to negative from stable, as we believe business conditions are difficult.

Our negative outlook is an overall indicator of credit trends over the next 12 months including distribution of outlooks on ratings, existing sector-wide risks, and emerging risks. Therefore, our negative outlook indicates that we expect to take additional negative rating actions on reinsurers over the next 12 months. As of August 31, 2020, 17% of ratings on the top 40 reinsurers carry a negative outlook (Charts 1 and 2).

In his 2007 book, “The Black Swan”, Nassim Nicholas Taleb coined the term “a black swan event” for an unpredictable catastrophic event . Whether the pandemic is a black swan event or not, in the first six months of 2020, the top 20 global reinsurers reported COVID-19 losses of about $12 billion, which are an earnings event for the industry on a stand-alone basis. Combined with other insurance losses, notably natural catastrophes and capital market volatility including investment losses, the sector could swing to a loss for the year. Thus, the sum of these losses could become a capital event for the sector in 2020.

We have revised our 2020 P/C combined ratio expectation for the top 20 global reinsurers to 103%–108%, including a natural catastrophe load of 8–10 percentage points (pps), reserve releases of 2–3 pps, and COVID-19 impact of 6–8 pps, as well as an ROE of 0%–3%.

The reinsurance sector remains well capitalized, with the top 20

1

3

6

16

8

6

*Financial strength ratings on core operating subsidiaries as of Aug. 31, 2020.

Source: S&P Global Ratings. Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

AA+ AA AA- A+ A A-

Chart 1: Top 40 global reinsurers rating distribution*

(0.1)

Source: S&P Global Ratings’ risk-based insurance capital adequacy model.

Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

2014

2015

2016

2017

2018

2019

14% 11%

2%

-5% -6%

-4%

25% 23%

14%

6% 5% 8%

35% 33%

21% 15%

14% 18%

70% 68%

51% 44%

43% 47%

AAA AA A BBB

Chart 4: Capital adequacy of the top 20 global reinsurers by confidence level

Chart 5: 2019 top 20 global reinsurers capital stress test

Source: S&P Global Ratings. RoC--Return on capital. CoC--Cost of capital.


Impact on the top 20 reinsurers’ capitalization

BBB excess capital AA excess capital

71.5 62.6

20.6 20.3 18.0 17.2 12.2 10.3

3.1

2002

U.S.

R/I

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Doub

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RoC<

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2.4

(Bil.

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0 10 20 30 40 50 60 70 80 90

37.5 33.7 32.5

46.4

6.2

0

2

4 6 8

10

12 14

16

Chart 6: Reinsurers weighted-average cost of capital versus return on capital

(%)

Source: S&P Global Ratings, Bloomberg.


15.9

Weighted-average cost of capital

Return on capital 10-year U.S. treasuries

11.0 11.6

9.9

7.9 9.0

7.7 7.4 7.8 7.1 6.6

7.2 7.8

6.0

7.6 7.2

4.5 5.8

2.9

8.1

1.5

2.9

6.9

3.2 2.1 4.4 4.7 4.0

2.2

3.8

1.9 1.8 2.2 2.3 2.4

2.4

2.7 1.9

0.7 0.7

A excess capital

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Q2 2020

18

8.7 8.4

10.5 10.4

8.8

6.7

9.2

14.3

16.6

3.3 3.0

Chart 7: Global reinsurance capital by source

Sources: Aon Securities Inc.


Traditional capital Alternative capital Global reinsurer capital

(Bil.

$)

17 22 19 22 24 28 44 50 64 72 81 89 97 95 91

368 388 321 378

447 428 461 490

511 493 514 516 488 530 499

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

385 410

340 400

470 455 505

540 575 565

595 605 585 625

590

0

2

4

6

8

10

12

14

16

Chart 8: Top global life reinsurers average return on equity

(%)

F: Forecast. Source: S&P Global Ratings’ estimated figures based on life reinsurance books of the following reinsurers: China Re, Hannover Re, Munich Re, Reinsurance Group of America, SCOR, and Swiss Re.

Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved.

2015 2016 2017 2018 2019 2020F

11.2 10.3

13.6

8.9

10.2

6.0

4.0

Stable (83%)

Negative (17%)

Chart 2: Top 40 global reinsurers outlook distribution*

Positive (0%)

*As of Aug. 31, 2020. Source: S&P Global Ratings.


Sources: The Washington Post. Johns Hopkins University.

1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020

Copyright 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 3: Deaths from pandemics, from antiquity to the modern era

1347-1352Black Death

75-200 million

541-542 A.D.

Plague of Justinian

30-50 million

165-180 A.D.Antonine Plague

5 million1520-unknown

New World Smallpox

25-55 million1885

DETAILON RIGHT

Third Plague

12 million1918-1920

Spanish Flu

50 million

1957-1958

Asian Flu

1 million

1968-1970

Hong Kong Flu

1 million2015

MERS

Less than 1,000

2014-2016

Ebola

11,000

2009-unknown

Swine Flu

200,000

2002-2003

SARS

Less than 1,0002020(as of Aug. 31)

COVID-19

849,389

1629-1631

ItalianPlague

1 million

1665

Great Plague of London

75,000-100,000Late 1800sYellow Fever

150,000

1889-1890Russian Flu

1 million

0 200 400 600 800 1000 1200 1400 1600 1800 20201900

1

3

6

16

8

6



AA+ AA AA- A+ A A-


(0.1)



2014

2015

2016

2017

2018

2019

14% 11%

2%

-5% -6%

-4%

25% 23%

14%

6% 5% 8%

35% 33%

21% 15%

14% 18%

70% 68%

51% 44%

43% 47%

AAA AA A BBB







71.5 62.6

20.6 20.3 18.0 17.2 12.2 10.3

3.1

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50%

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COVID

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Doub

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B (Se

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AA)

RoC<

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mon

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2.4

(Bil.

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0 10 20 30 40 50 60 70 80 90

37.5 33.7 32.5

46.4

6.2

0

2

4 6 8

10

12 14

16


(%)



15.9



11.0 11.6

9.9

7.9 9.0

7.7 7.4 7.8 7.1 6.6

7.2 7.8

6.0

7.6 7.2

4.5 5.8

2.9

8.1

1.5

2.9

6.9

3.2 2.1 4.4 4.7 4.0

2.2

3.8

1.9 1.8 2.2 2.3 2.4

2.4

2.7 1.9

0.7 0.7

A excess capital

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Q2 2020

18

8.7 8.4

10.5 10.4

8.8

6.7

9.2

14.3

16.6

3.3 3.0





(Bil.

$)

17 22 19 22 24 28 44 50 64 72 81 89 97 95 91

368 388 321 378

447 428 461 490

511 493 514 516 488 530 499

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

385 410

340 400

470 455 505

540 575 565

595 605 585 625

590

0

2

4

6

8

10

12

14

16


(%)



2015 2016 2017 2018 2019 2020F

11.2 10.3

13.6

8.9

10.2

6.0

4.0

Stable (83%)

Negative (17%)


Positive (0%)




1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020




75-200 million

541-542 A.D.

Plague of Justinian

30-50 million



New World Smallpox

25-55 million1885

DETAILON RIGHT

Third Plague

12 million1918-1920

Spanish Flu

50 million

1957-1958

Asian Flu

1 million

1968-1970

Hong Kong Flu

1 million2015

MERS

Less than 1,000

2014-2016

Ebola

11,000

2009-unknown

Swine Flu

200,000

2002-2003

SARS


COVID-19

849,389

1629-1631

ItalianPlague

1 million

1665



150,000


1 million

0 200 400 600 800 1000 1200 1400 1600 1800 20201900


Overall reinsurance pricing has been hardening during the past 18 months, with tightening terms and conditions, further supported by COVID-19 losses. Reinsurers were already dealing with adverse loss trends in U.S. casualty and certain specialty lines, which might be exacerbated by the pandemic-induced stresses and the increasing frequency and severity trends owing to social inflation.

COC has increased and retrocession capacity is expensive. Investment income is bound to suffer over the next couple of years as portfolios face lower-for-longer interest rates, higher credit losses, and increased credit migration. Therefore, higher technical underwriting margins are needed to make up for the shortfall in investment income and for insured losses, which we believe will carry the positive pricing momentum into 2021.

We recognize the high degree of uncertainty regarding the rate of spread and peak of the coronavirus outbreak, and the potential for a second wave in the fall. There is also uncertainty around the shape of the recovery, how the economy and consumers will react to various stimuli, and whether we will revisit market lows and volatility that we saw in March of this year. Furthermore, the risk of legal, regulatory, and legislative intervention that redefines coverage terms remains an overhang on the sector in the short term.

Reinsurers Are Debating Whether The Pandemic Is A Black Or A White Swan According to Johns Hopkins University, total global COVID-19 cases reached 25.4 million at the end of August 2020, with about 850,000 deaths in 188 countries and regions. Given the rapid propagation of COVID-19 globally, some industry experts rushed to label the pandemic as a black swan event. However, Taleb argues that COVID-19 isn’t a black swan but reveals the fragility of our systems. In contrast, the September 11, 2001, attacks are viewed as a black swan.

Indeed, the world has witnessed many pandemics throughout millennia (Chart 3). It experienced at least four pandemics/

epidemics as recently as in the past two decades: Ebola (2014–2016), MERS (2015), Swine flu (2009), and SARS (2002–2003). So clearly, pandemics aren’t rare.

The world has become a global village aided by low-cost international air travel, which has exacerbated the exponential spread of the virus. This time, the economic impact may have been more dramatic because of the increased interconnectivity and interdependence of our global systems as well as the unexpected and rushed lockdowns.

In the first half of 2020, the S&P Global Ratings’ cohort of the top 20 global reinsurers recognized about $12 billion in COVID-19 losses or about 6 pps on the combined ratio based on annualized earned premiums. These booked figures are mostly incurred but not reported losses representing first-order impacts from the outbreak, and include event cancellation, (contingent) business interruption, aviation, directors and officers, errors and omissions, credit including surety and mortgage, mortality, travel, and workers’ compensation. We believe additional direct and indirect COVID-19-related losses could emerge over the coming quarters.

A potential rise in corporate defaults will hit directors and officers policies, which have already been affected by claims inflation in recent years in the U.S. For business interruption and aviation, the impact will vary by region and depend

on policy language. Most standard business interruption and aviation policies only cover losses from physical damage events—excluding infectious diseases. For example, U.S. policies for the most part exclude communicable diseases. For business interruption in the U.S., there could be legislative attempts to retroactively expand insurance contract coverage. We believe that such efforts would be unsuccessful, unless the government provides resources to insurers to meet these obligations.

Outside of the U.S., there is an element of uncertainty about whether business interruption claims will be triggered and covered by re/insurers and may be subject to legal proceedings, particularly for policies with less definitive wordings around pandemic coverage. We therefore do not rule out that either regulatory or legal pressure to pay claims may arise, with the potential for further volatility for reinsurers. Furthermore, we expect loss adjustment expenses (LAE) to increase with a rise in litigation.

Reinsurance Renewals Indicate A Firming Market, But Not Necessarily A Hard One YetThe sentiment for rate increases had been in place for the past 18 months or so due to the confluence of many factors, but the 2019 reinsurance price rises lagged those in the primary insurance and retrocession markets. As a result,

1

3

6

16

8

6



AA+ AA AA- A+ A A-


(0.1)



2014

2015

2016

2017

2018

2019

14% 11%

2%

-5% -6%

-4%

25% 23%

14%

6% 5% 8%

35% 33%

21% 15%

14% 18%

70% 68%

51% 44%

43% 47%

AAA AA A BBB







71.5 62.6

20.6 20.3 18.0 17.2 12.2 10.3

3.1

2002

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0 10 20 30 40 50 60 70 80 90

37.5 33.7 32.5

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0

2

4 6 8

10

12 14

16


(%)



15.9



11.0 11.6

9.9

7.9 9.0

7.7 7.4 7.8 7.1 6.6

7.2 7.8

6.0

7.6 7.2

4.5 5.8

2.9

8.1

1.5

2.9

6.9

3.2 2.1 4.4 4.7 4.0

2.2

3.8

1.9 1.8 2.2 2.3 2.4

2.4

2.7 1.9

0.7 0.7

A excess capital

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Q2 2020

18

8.7 8.4

10.5 10.4

8.8

6.7

9.2

14.3

16.6

3.3 3.0





(Bil.

$)

17 22 19 22 24 28 44 50 64 72 81 89 97 95 91

368 388 321 378

447 428 461 490

511 493 514 516 488 530 499

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

385 410

340 400

470 455 505

540 575 565

595 605 585 625

590

0

2

4

6

8

10

12

14

16


(%)



2015 2016 2017 2018 2019 2020F

11.2 10.3

13.6

8.9

10.2

6.0

4.0

Stable (83%)

Negative (17%)


Positive (0%)




1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020




75-200 million

541-542 A.D.

Plague of Justinian

30-50 million



New World Smallpox

25-55 million1885

DETAILON RIGHT

Third Plague

12 million1918-1920

Spanish Flu

50 million

1957-1958

Asian Flu

1 million

1968-1970

Hong Kong Flu

1 million2015

MERS

Less than 1,000

2014-2016

Ebola

11,000

2009-unknown

Swine Flu

200,000

2002-2003

SARS


COVID-19

849,389

1629-1631

ItalianPlague

1 million

1665



150,000


1 million

0 200 400 600 800 1000 1200 1400 1600 1800 20201900

Reinsurance Outlook


reinsurers expected pricing to rebound coming into 2020, with a major pick-up seen during midyear renewals, which were promising although somewhat below what the sector had hoped for. Despite the risks from COVID-19 becoming prominent, pandemic-related considerations didn’t really start to fully factor in until June renewals, which gave a further boost to pricing.

During the January renewals, global reinsurance pricing saw an aggregate increase in the low-to-mid single digits but it was not an across-the-board increase, with pricing dynamics varying by region, line of business, and cedents’ performance. While property and property-catastrophe price increases were satisfactory at best, a more promising aspect of the renewals was the revival in U.S. casualty pricing, albeit still insufficient, which in the past had been characterized by subsidization from U.S. property-catastrophe business.

April renewals are primarily Asia-Pacific centric with Japan being the largest market. Due to large losses from typhoons Jebi, Hagibis, and Faxai, and related adverse reserve developments, reinsurers had been reaching out to their cedents much in advance of the renewals. In the end, pricing for wind and flood exposures rose by up to 50% on loss-affected business but it left some reinsurers hoping to get to a quicker payback somewhat disappointed.

This market is largely served by traditional capital and there wasn’t much of a capital constraint, which may have

tempered price gains. While most of the reinsurers retained their participation, the market shares shifted slightly to the large European reinsurers, as they upped their participation while a few North American reinsurers pulled back.

Florida June renewals experienced d i s lo c at i o n . T h e re n ewa l s we re completed, but it wasn’t smooth sailing. Limits were taken out of the market, for instance, the non-renewal of the Florida Hurricane Catastrophe Fund limit of $920 million and $560 million limit reduction by Citizens, Florida insurer of last resort. But, even with the reduced demand, the rates were significantly higher. Unlike in previous years when alternative capital led on pricing, this year traditional reinsurers drove pricing for a change.

Traditional reinsurers dealing with higher losses, constrained alternative capital capacity, and higher retrocession costs, pushed hard for higher rates as the pandemic added another concern to the list. The rate increases averaged 25%–35% but the range was much broader (in some cases up to 80%) depending on

the loss experience and cedents’ ability to manage LAE. Terms and conditions also improved, with pandemic and cyber exclusions put in and LAE caps included to reflect the adverse developments on hurricanes Irma and Michael losses due to assignment of benefits issues. Despite the magnitude of rate increases, the reinsurance sector’s net exposure to Florida is relatively down from the previous year.

Finally, the July renewals saw similar upward pricing trends depending on the region, cedent, and line of business. However, outside the U.S., rate increases were relatively subdued but positive, a change from historical trends. In a nutshell, overall reinsurance pricing has been hardening with tightening terms and conditions, further supported by the outbreak losses, which will carry the momentum into 2021.

Capitalization Remains A Strength The reinsurance sector benefits from robust capital adequacy, which remains a pillar of strength for most reinsurers. This strength softens the potential blow from the severity risks that the industry is exposed to. For example, natural catastrophes, long-tail casualty reserves, and pandemics, to name a few, are risks that reinsurers assume in their underwriting operations.

The reinsurance industry often serves as a backstop for the primary insurance market. Therefore, to cope with these severity risks and the ensuing volatility, global reinsurers tend to be strongly capitalized with generally conservative investment strategies (Chart 4).

The top 20 global reinsurers’ capitalization strengthened in 2019 and was 8% redundant at the ‘AA’ confidence level relative to 5% in 2018, because of a strong capital market recovery. This cohort lost their capital redundancy at the ‘AAA’ confidence level in the past three years because of record catastrophe losses in 2017 and 2018, adjustments to the large global reinsurers’ asset liability management and longevity risk capital charges, share buybacks, and special dividends.

Given the extreme turbulence in the

“Pandemic-related considerations didn’t really start to fully factor in until June renewals, which gave a further boost to pricing.”

1

3

6

16

8

6



AA+ AA AA- A+ A A-


(0.1)



2014

2015

2016

2017

2018

2019

14% 11%

2%

-5% -6%

-4%

25% 23%

14%

6% 5% 8%

35% 33%

21% 15%

14% 18%

70% 68%

51% 44%

43% 47%

AAA AA A BBB







71.5 62.6

20.6 20.3 18.0 17.2 12.2 10.3

3.1

2002

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0 10 20 30 40 50 60 70 80 90

37.5 33.7 32.5

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0

2

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(%)



15.9



11.0 11.6

9.9

7.9 9.0

7.7 7.4 7.8 7.1 6.6

7.2 7.8

6.0

7.6 7.2

4.5 5.8

2.9

8.1

1.5

2.9

6.9

3.2 2.1 4.4 4.7 4.0

2.2

3.8

1.9 1.8 2.2 2.3 2.4

2.4

2.7 1.9

0.7 0.7

A excess capital

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Q2 2020

18

8.7 8.4

10.5 10.4

8.8

6.7

9.2

14.3

16.6

3.3 3.0





(Bil.

$)

17 22 19 22 24 28 44 50 64 72 81 89 97 95 91

368 388 321 378

447 428 461 490

511 493 514 516 488 530 499

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

385 410

340 400

470 455 505

540 575 565

595 605 585 625

590

0

2

4

6

8

10

12

14

16


(%)



2015 2016 2017 2018 2019 2020F

11.2 10.3

13.6

8.9

10.2

6.0

4.0

Stable (83%)

Negative (17%)


Positive (0%)




1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020




75-200 million

541-542 A.D.

Plague of Justinian

30-50 million



New World Smallpox

25-55 million1885

DETAILON RIGHT

Third Plague

12 million1918-1920

Spanish Flu

50 million

1957-1958

Asian Flu

1 million

1968-1970

Hong Kong Flu

1 million2015

MERS

Less than 1,000

2014-2016

Ebola

11,000

2009-unknown

Swine Flu

200,000

2002-2003

SARS


COVID-19

849,389

1629-1631

ItalianPlague

1 million

1665



150,000


1 million

0 200 400 600 800 1000 1200 1400 1600 1800 20201900

Reinsurance Outlook


capital markets earlier this year and the uncertainty around COVID-19 losses, reinsurers have halted their share repurchases, a few have curtailed their dividends due to regulatory guidance, and many have raised capital that totaled close to $10 billion year-to-date, to bolster their balance sheets, with some aiming to take advantage of more favorable reinsurance pricing.

This capital took the form of debt, hybrids, and even common equity, which should cushion against what seems to be an active catastrophe year. We believe capitalization will remain a strength for the sector in the next two years, but could be tested again by market volatility (Chart 5).

As rate increases are booked, and earned, through income statements over the upcoming quarters, this should improve the accident-year loss ratios. However, because of the confluence of COVID-19 losses, adverse loss trends notably in U.S. casualty lines, and natural catastrophe claims, we forecast an underwriting loss for the industry in 2020 with a combined ratio of 103%–108% for the top 20 reinsurers and an extremely low ROE of 0%–3% (Table 1). Although we expect some COVID-19 losses will emerge next year, the earnings picture will likely improve in 2021 as reinsurance rate increases are earned, and assuming COVID-19 losses are contained within the current aggregate estimates. The Industry Has Struggled To Earn Its

2019 helped the sector barely earn its COC. This meant that the gap between the sector’s actual ROC and COC was a positive 0.9%. In the first half of 2020, the sector took a hit from COVID-19-related losses, significantly lower net investment income relative to the previous year, overall capital market volatility with declining equity valuations, and spread widening.

However, the capital markets’ surprising quick recovery after the first quarter through the end of August has provided some—perhaps temporary—relief to reinsurers. But, credit risk within fixed-income portfolios remains elevated,

Cost Of Capital And 2020 Doesn‘t Look Promising The global reinsurance sector’s track record of earning its COC has been weak. Similar to 2017 and 2018, 2020 will be another year when reinsurers will struggle to meet their COC. In 2017 and 2018, the reinsurance sector generated an ROC of only 1.5% and 2.9% below its 7.2% and 7.8% COC, respectively (defined as the weighted-average cost of capital). The impact of 2017 and 2018 natural catastrophe losses, loss creep, and investment market volatility in fourth-quarter 2018, all played a significant part in these results.

The improved investment returns in

1

3

6

16

8

6



AA+ AA AA- A+ A A-


(0.1)



2014

2015

2016

2017

2018

2019

14% 11%

2%

-5% -6%

-4%

25% 23%

14%

6% 5% 8%

35% 33%

21% 15%

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70% 68%

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AAA AA A BBB







71.5 62.6

20.6 20.3 18.0 17.2 12.2 10.3

3.1

2002

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10 20 30 40 50 60 70 80 90

37.5 33.7 32.5

46.4

6.2

0

2

4 6 8

10

12 14

16


(%)



15.9



11.0 11.6

9.9

7.9 9.0

7.7 7.4 7.8 7.1 6.6

7.2 7.8

6.0

7.6 7.2

4.5 5.8

2.9

8.1

1.5

2.9

6.9

3.2 2.1 4.4 4.7 4.0

2.2

3.8

1.9 1.8 2.2 2.3 2.4

2.4

2.7 1.9

0.7 0.7

A excess capital

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Q2 2020

18

8.7 8.4

10.5 10.4

8.8

6.7

9.2

14.3

16.6

3.3 3.0





(Bil.

$)

17 22 19 22 24 28 44 50 64 72 81 89 97 95 91

368 388 321 378

447 428 461 490

511 493 514 516 488 530 499

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

385 410

340 400

470 455 505

540 575 565

595 605 585 625

590

0

2

4

6

8

10

12

14

16


(%)



2015 2016 2017 2018 2019 2020F

11.2 10.3

13.6

8.9

10.2

6.0

4.0

Stable (83%)

Negative (17%)


Positive (0%)




1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020




75-200 million

541-542 A.D.

Plague of Justinian

30-50 million



New World Smallpox

25-55 million1885

DETAILON RIGHT

Third Plague

12 million1918-1920

Spanish Flu

50 million

1957-1958

Asian Flu

1 million

1968-1970

Hong Kong Flu

1 million2015

MERS

Less than 1,000

2014-2016

Ebola

11,000

2009-unknown

Swine Flu

200,000

2002-2003

SARS


COVID-19

849,389

1629-1631

ItalianPlague

1 million

1665



150,000


1 million

0 200 400 600 800 1000 1200 1400 1600 1800 20201900

Table 1: Top 20 global reinsurers combined ratio and ROE performance

(%) 2015 2016 2017 2018 2019 2020F 2021F

Combined ratio 90.7 95.1 109.0 101.0 101.0 103-108 97-101

(Favorable)/unfavorable reserve developments

(6.5) (6.0) (4.6) (4.7) (1.0) (2)-(3) (2)-(3)

Natural catastrophe losses impact on the combined ratio

2.8 5.7 17.1 9.3 7.2 8-10 8-10

Accident-year combined ratio excluding natural catastrophe losses, COVID-19 losses, and reserve developments

94.5 95.4 96.6 96.3 94.8 92.0 91.0

COVID-19 losses impact on the combined ratio

N.A. N.A N.A. N.A. N.A. 6-8 1-2

Return on equity 10.2 8.3 1.6 3.0 9.2 0-3 5-8

F: Forecast. N.A.: Not applicable. The top 20 global reinsurers are: Alleghany, Arch, Aspen, AXIS, China Re, Everest Re, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, Lloyd’s, Markel, Munich Re, PartnerRe, Qatar Ins, RenaissanceRe, SCOR, Sirius, and Swiss Re.

Reinsurance Outlook


which will test the sector’s investment returns in 2020–2021.

Insurance losses, including COVID-19-related claims, coupled with investment and natural catastrophe losses, reduced the sector’s ROC in the first half of 2020 to 2.1% compared with 6.9% in 2019. At the same time, the COC rose to 7.2% from 6.0%, because of higher equity and credit risk premiums, partially mitigated by declining risk-free rates (Chart 6).

In addition, any constraints on alternative capital, which the sector has come to rely on heavily, will also push up the cost of doing business. While it’s difficult to project the sector’s full-year 2020 earnings because of rising uncertainties, it’s unlikely that they will be sufficient to meet the sector’s COC. For some reinsurers, which we would consider negative outliers, the 2020 underperformance may become a capital event.

Prospectively, we could reconsider our negative outlook on the sector at the point that we believe that the sector may earn its COC, which we don’t expect will happen before 2021, at the earliest.

Alternative Capital Backers Are More Selective, While Capacity Remains Constrained In 2019, alternative capital in the reinsurance market decreased for the first time since the 2008 financial crisis, and the trend has continued in 2020. However, alternative capital, which includes collateralized reinsurance funds, insurance-linked securities, sidecars, and industry loss warranties, still plays an important role in the global reinsurance market despite its recent decline.

In general , alternative capital accounts for about 20% of total property-catastrophe reinsurance capacity, but it provides more than 75% aggregate retrocession capacity. Therefore, it continues to exert its influence on reinsurance and retrocession pricing. We believe the pullback is temporary in a prolonged period of more inflow and influence from nontraditional third-party capital sources.

According to Aon, alternative capital fell 4.2% to $91 billion at the end of first-

quarter 2020, from year-end 2019, and represented about 15.4% of the $590 billion global reinsurance capital. Based on discussions with major reinsurers, we believe the $91 billion of assets under management included about $20 billion of trapped capital as collateral. Investors are still reeling from their capital being locked for the fourth year in a row because of the 2019–2020 natural catastrophe losses, adverse developments on 2017–2018 events, and potential for leakage from business interruption into property coverage due to COVID-19.

The decrease in alternative capital was caused by dismal returns in the past few years, loss payments, and loss creep from earlier events, exacerbated by governance issues at certain funds. These factors, among other things, have triggered redemptions by some investors while others paused to reassess their appetite for insurance risk. Investors also have concerns vis-à-vis model credibility, including models for secondary perils

such as wildfires, risk selection/underwriting, loss reporting, and reserve setting, and the potential climate change impact on the increase in frequency and severity of natural catastrophes.

This has caused a flight to quality, as investors have become more selective and have shifted their attention to well-established sponsors or managers with a better track record, modelling capabilities, clearer underwriting strategies, and stronger reserving practices and governance while asking for higher returns.

During the past 18 months, it seemed that alternative capital ran out of steam, but the case for investing in low-correlated insurance-linked assets to diversify in a low interest rate environment remains valid. As a result, we believe alternative capital backed by long-term investors remains committed to property-catastrophe risk and is here to stay, further supported by hardening reinsurance pricing. However, this hypothesis could be tested if additional collateral is trapped while other asset classes may offer higher returns.

Alternative capital has expanded to other lines of business such as in-force life and annuity blocks, and has become a vital risk transfer instrument for U.S. private mortgage insurers. Year-to-date catastrophe bonds issuance has been healthy and we expect it will remain so during the remainder of 2020 and into 2021, aided by the dislocation in the

“Prospectively, we could reconsider our negative outlook on the sector at the point that we believe that the sector may earn its COC, which we don’t expect will happen before 2021, at the earliest.”

1

3

6

16

8

6



AA+ AA AA- A+ A A-


(0.1)



2014

2015

2016

2017

2018

2019

14% 11%

2%

-5% -6%

-4%

25% 23%

14%

6% 5% 8%

35% 33%

21% 15%

14% 18%

70% 68%

51% 44%

43% 47%

AAA AA A BBB







71.5 62.6

20.6 20.3 18.0 17.2 12.2 10.3

3.1

2002

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-19 (

first

half o

f 202

0)

30%

equit

y sho

ck

Divid

ends

paid

by th

e top

20 re

insur

ers

Doub

le BB

B (Se

lling A

AA)

RoC<

CoC f

or 12

mon

ths (

1%)

2.4

(Bil.

$)

0 10 20 30 40 50 60 70 80 90

37.5 33.7 32.5

46.4

6.2

0

2

4 6 8

10

12 14

16


(%)



15.9



11.0 11.6

9.9

7.9 9.0

7.7 7.4 7.8 7.1 6.6

7.2 7.8

6.0

7.6 7.2

4.5 5.8

2.9

8.1

1.5

2.9

6.9

3.2 2.1 4.4 4.7 4.0

2.2

3.8

1.9 1.8 2.2 2.3 2.4

2.4

2.7 1.9

0.7 0.7

A excess capital

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Q2 2020

18

8.7 8.4

10.5 10.4

8.8

6.7

9.2

14.3

16.6

3.3 3.0





(Bil.

$)

17 22 19 22 24 28 44 50 64 72 81 89 97 95 91

368 388 321 378

447 428 461 490

511 493 514 516 488 530 499

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

385 410

340 400

470 455 505

540 575 565

595 605 585 625

590

0

2

4

6

8

10

12

14

16


(%)



2015 2016 2017 2018 2019 2020F

11.2 10.3

13.6

8.9

10.2

6.0

4.0

Stable (83%)

Negative (17%)


Positive (0%)




1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020




75-200 million

541-542 A.D.

Plague of Justinian

30-50 million



New World Smallpox

25-55 million1885

DETAILON RIGHT

Third Plague

12 million1918-1920

Spanish Flu

50 million

1957-1958

Asian Flu

1 million

1968-1970

Hong Kong Flu

1 million2015

MERS

Less than 1,000

2014-2016

Ebola

11,000

2009-unknown

Swine Flu

200,000

2002-2003

SARS


COVID-19

849,389

1629-1631

ItalianPlague

1 million

1665



150,000


1 million

0 200 400 600 800 1000 1200 1400 1600 1800 20201900

Reinsurance Outlook


retrocession market. We believe that once the dust settles and the losses are fully digested with greater visibility around COVID-19 losses, alternative capital will likely renew with growth (Chart 7).

Life Reinsurers Are Facing Higher Mortality Losses, But The Impact Is ManageableThe life reinsurance sector has not remained unscathed by the pandemic, with the top 20 global reinsurers reporting about $1 billion of COVID-19-related underwriting losses in the first half of the year. Underwriting losses arise mainly from a higher mortality rate due to the outbreak, with the majority of the losses from the U.S.

However, the ultimate losses will depend on the actions of governments and society at large to control the spread, which will influence the mortality, longevity, and morbidity experience. This also highlights the sector’s sensitivity to key actuarial assumptions related to these business lines including correlation.

However, compared with the P/C reinsurance sector, life reinsurance is less affected, we believe. Despite the negative impact from COVID-19, we believe the life reinsurance sector continues to benefit from strong credit fundamentals and helps with diversification benefits for multiline reinsurers. While the operating performance will weaken in 2020, we still expect an ROE of 4%–6% in 2020 relative to 10.2% in 2019. With the expected economic recovery in 2021, the ROE will likely improve to about 10% (Chart 8).

In general, with its high barriers to entry and fewer global players, life reinsurance is less price sensitive relative to P/C. Reinsurance buyers are sophisticated, precluding the need for intermediaries, and demand is less driven by available capacity and more by balance-sheet management. We have also observed an increasing demand for financially motivated reinsurance for capital relief amid the hike in reserve provisions caused by low interest rates.

The U.S. is the sector ’s biggest market, with 40% market share of global premiums with stable cession

rates from primary insurers. The U.K. longevity business continues to see strong demand. However, we believe the industry’s future growth will mostly come from Asian markets, specifically emerging markets, which are experiencing increased insurance penetration supporting robust growth of primary life business. Mergers and acquisitions and alternative capital aren’t transformative in this space.

Therefore, we think the competitive landscape will remain largely stable over the next few years.

Foggy Conditions AheadThere is no playbook for the conditions reinsurers find themselves in. Although the reinsurance sector is adept in dealing with multiple large catastrophic events, the current state of affairs is producing additional stresses and uncertainties. Unfortunately, reinsurers are facing the pandemic at a time when the tide was turning on the soft pricing cycle. In dealing with COVID-19 losses, the resultant stresses may expose weaknesses of the past in a more severe way, dealing a blow to some reinsurers.

1

3

6

16

8

6



AA+ AA AA- A+ A A-


(0.1)



2014

2015

2016

2017

2018

2019

14% 11%

2%

-5% -6%

-4%

25% 23%

14%

6% 5% 8%

35% 33%

21% 15%

14% 18%

70% 68%

51% 44%

43% 47%

AAA AA A BBB







71.5 62.6

20.6 20.3 18.0 17.2 12.2 10.3

3.1

2002

U.S.

R/I

rese

rve st

reng

then

ing

1/25

0 yea

r agg

rega

te ca

t.

1/10

0 yea

r agg

rega

te ca

t.

1/50

year

aggr

egat

e cat

.

Doub

le eq

uity e

xpos

ure (

Sellin

g AAA

)

10%

rese

rve st

reng

then

ing

1/10

year

aggr

egat

e cat

.

Bond

ratin

gs do

wn on

e cat

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y

COVID

-19 (

$60 b

il. ind

ustry

insu

red l

oss)

50%

equit

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ck

COVID

-19 (

first

half o

f 202

0)

30%

equit

y sho

ck

Divid

ends

paid

by th

e top

20 re

insur

ers

Doub

le BB

B (Se

lling A

AA)

RoC<

CoC f

or 12

mon

ths (

1%)

2.4

(Bil.

$)

0 10 20 30 40 50 60 70 80 90

37.5 33.7 32.5

46.4

6.2

0

2

4 6 8

10

12 14

16


(%)



15.9



11.0 11.6

9.9

7.9 9.0

7.7 7.4 7.8 7.1 6.6

7.2 7.8

6.0

7.6 7.2

4.5 5.8

2.9

8.1

1.5

2.9

6.9

3.2 2.1 4.4 4.7 4.0

2.2

3.8

1.9 1.8 2.2 2.3 2.4

2.4

2.7 1.9

0.7 0.7

A excess capital

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Q2 2020

18

8.7 8.4

10.5 10.4

8.8

6.7

9.2

14.3

16.6

3.3 3.0





(Bil.

$)

17 22 19 22 24 28 44 50 64 72 81 89 97 95 91

368 388 321 378

447 428 461 490

511 493 514 516 488 530 499

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

385 410

340 400

470 455 505

540 575 565

595 605 585 625

590

0

2

4

6

8

10

12

14

16


(%)



2015 2016 2017 2018 2019 2020F

11.2 10.3

13.6

8.9

10.2

6.0

4.0

Stable (83%)

Negative (17%)


Positive (0%)




1900 ’10 ’20 ’30 ’40 ’50 ’ 60 ’70 ’80 ’90 ’00 ’10 2020




75-200 million

541-542 A.D.

Plague of Justinian

30-50 million



New World Smallpox

25-55 million1885

DETAILON RIGHT

Third Plague

12 million1918-1920

Spanish Flu

50 million

1957-1958

Asian Flu

1 million

1968-1970

Hong Kong Flu

1 million2015

MERS

Less than 1,000

2014-2016

Ebola

11,000

2009-unknown

Swine Flu

200,000

2002-2003

SARS


COVID-19

849,389

1629-1631

ItalianPlague

1 million

1665

Reinsurance Global Highlights 2019 Reinsurance Highlights …...Global Reinsurance Highlights 2020 5...

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