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Reinsurance outlook ‘stable’ amid economic recovery, says Moody’s

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The outlook for reinsurance has changed to ‘stable’ from ‘negative’ as prices increase amid a worldwide economic rebound, supporting the sector’s earnings while capitalisation will remain solid, Moody’s Investors Service said Tuesday.

“Healthy price increases will drive stronger earnings through to 2022 as the post-pandemic economic recovery and recent significant catastrophe losses fuel fresh demand for reinsurance,” said Helena Kingsley-Tomkins, VP-Senior Analyst at Moody’s.

“The sector’s capitalisation remains solid, with solvency ratios resilient in a range of stress scenarios,” she added.

Property reinsurance prices continue to climb, driven by recent natural catastrophe losses, and a re-evaluation of secondary peril risks, including winter storms, flooding and wildfires. Casualty pricing also remains strong across most lines because of higher demand, loss cost trends and low investment yields.

The rating agency said uncertainty over Covid liabilities has diminished although pandemic-related claims continue to affect earnings for some large multiline reinsurers in 2021, driven by higher than expected mortality claims.

The pandemic has caused reinsurers to take a more prudent stance towards systemic risk management, including communicable disease, cyber events and climate change.

As alternative capital returns to growth in 2021, traditional reinsurers with strong third-party capital management platforms will be well positioned to take advantage of new opportunities, Moody’s said.

For reinsurers, such platforms generate fee income while allowing them to underwrite risks and increase their market share at a lower capital cost.