Willis Re: Reinsurers to face higher risk in future

Willis Re has published a COVID-19 Impact Report that states many insurance companies will end up holding more risk than anticipated relative to their balance sheets, the report states. They are likely facing three options: retain current strategy, de-risk, or hedge.

The solvency reduction may take some companies below their desired minimum capital threshold, and insurers have already moved to begin adjusting their plans to suit a range of economic scenarios.

Reinsurers have started to de-risk their balance sheets by holding cash, which will have a significant impact on investment returns. Willis Re currently estimates a five percent hit to the global reinsurance capital base, roughly USD30 billion pre-tax. Additional pressures may emerge should economic conditions further deteriorate with a consequent impact on investments.

The four European majors are expected to retain solvency ratios above their self-imposed minima, while the US reinsurance industry capital levels remains comfortable. Willis Re estimates a total seven percent hit to US reinsurers’ statutory capital.