2020 is an extremely challenging year for the global (re)insurance industry following the spread of the pandemic Covid-19 , the mounting political tensions and conflicts, the massive explosion in Beirut, and of course all other expected and inevitable catastrophic events and natural disasters.
Obviously, all sectors have been heavily battered and it is not over yet. The good thing is the crisis always depict the survival of the fittest and bring changes in the good direction. We see already some tightening of the reinsurance market with many topics to discuss since the beginning of this crisis. Shall we expect a new chapter in our industry, with a more complex and precise structure and a high-quality development?
After nearly nine months since the first virus alert in China, the pandemic is still very active across various regions. Sadly, we are already experiencing the second waves in many countries. On P&C side, the actual reported Covid-19 pandemic-related losses are around $25 billion, according to the main insurers and reinsurers in the market.
Establishing loss limits
Compared to a simple natural disaster, the final loss estimate for Covid-19 is extremely complicated and uncertain, the estimation given by different experts are between $60 and $110 billion, a very wide range. The losses concentrated mainly on Event Cancellation, Property and Trade Credit and the most impacted areas are the US and Europe. The Covid-19 impact in Asia remains relatively limited.
For the April 1st and July 1st renewals just gone through, the inclusion of communicable diseases exclusion clauses is compulsorily requested by reinsurers for most of Property and Liability treaties to avoid any new pandemic losses or any further litigation situations. And we see already reinsurance rate increases for some European markets. However, insurers will seek a supplementary coverage relevant to this specific risk very quickly, a new insurance product or a government pool related to pandemic could be possible.
Even though (re)insurers are already suffering from Covid-19 crisis in 2020, this second semester is also not going as smoothly as people hoped, several natural disasters took place all over the world and caused more losses in the Agriculture business and P&C.
Floods in China
In China, there were heavy rains from June and resulted in severe floods in southern China and around the Yangtze River basin, with rain expected to hit central and eastern China during July. 2020 floods are considered as the worst since at least 1998. The floods have affected 63.46 million people and caused a direct economic loss of 178.96 billion CNY as of mid-August. At the same time, severe spring drought hit northeast China's Liaoning Province, 1,2 million hectares of crops have been compromised and it is considered as the worst drought in Liaoning since 1958.
After the outbreak of the African Swine Fever over the past two years, the market made efforts and there were significant improvements of the reinsurance terms during the last renewal, particularly for Livestock section. A Loss Participation Clause has also been introduced into the biggest nationwide quota share treaties and the fixed commissions have deeply dropped down. However, The extreme weather and natural disasters are strongly linked to the climate change and become increasingly frequent nowadays, we observe a “1 in 60 years” event every 2 or 3 years. It is therefore very necessary to review the modelling and take into account this climate change effect, and not simply tariff with the historical data.
The (re)insurance industry need to keep making coordinated efforts to avoid more unbalanced situation and further loss. Improving loss management and using new technologies are also very important for the industry. In addition, with the recent creation of Chinese Agriculture Reinsurance Company, reinsurers’ underwriting strategy could evolve again during the next renewal.
Nat CAT in South Korea
Besides China, South Korea faced also several natural events in 2020. The country experienced the longest monsoon season in history this year and has been affected by unusually heavy rain and floods. The latest loss estimation is over KRW 1 trillion in property damage from the torrential rains that occurred between 28 July and 11 August 2020, the crop losses are still undergoing assessment. In addition, five typhoons have affected the country untill today and the three latter ones, Bevi, Maysal and Haishen, occurred almost consecutively and made landfall on the Korean Peninsula within two weeks. The industry is expecting more losses for both Property and Agriculture side.
Strikes, riots and civil commotion
Among all thus already mentioned risks and their consequences such as outbreak or Natural Catastrophes there another one threat, which are increasingly growing. It is all about political violence. This phenomenon of riot incidents that have occurred globally since 2010 is already double that which occurred in the previous ten years. Indeed today’s business is exposed to all types ‘of riots, civil unrest, strikes and terrorism attacks. All of these can result in property damage, business interruption BI and a loss of income for commercial industry.
Consequently, experience has shown that these events can have a direct, and costly, effect on insurance industry.
For the past two years, there were numerous protest movements here and there in the world. Your remember well Chilean protest, “Yellow Jackets” movement in France, Hong Kong Protests, ThaÏ Riots or Georges Floyd unrest which is still continue to set ablaze American society.
Chile unrest
In October 2019 there was one of the most violent movement protest in the recent history, broke out in Chile. The start point was the contest of a four-cent increase by the Santiago Metro subway. A numerous metro stations were destroyed causing US$370million in damages. The city’s economy, infrastructure and commerce were completely paralyzed. The famous retail Walmart was badly heated from their Chilean subsidiaries that suffered significant losses of more than 128 of its 400 supermarkets looted, with 34set on the fire and 17 destroyed according to Reuters.
In 2018, a tax increase on all fossil fuels resulted in “Yellow Jackets” protests, rioting and looting throughout the country. The consequences on economy were terrible, claims coming from property damage, BI and a general loss of income for many businesses with an estimated US$2.1million in insurance claims reported as of May 2019.
In Hong Kong, all-sized businesses suffered smashed windows, graffiti and even fire for their perceived support of mainland China by activists. Ongoing protests over proposed extradition legislation and loss of autonomy in Hong Kong have so far resulted in over four thousand arrests, a 24% year-on-year plummet in retail sales in October 2019 and a 40% fall in tourist activity during the same period.
There a too many examples and they can’t be exhausted but one thing is sure is that globally insurers are seeing an increase in part because customers are buying more insurance but also because companies and supply chains are more and more multinational which makes them more exposed and (re)insurers bearing the brunt of that.
Coordination at renewals time
For the upcoming renewals, the whole industry should be very vigilant, all ambiguity have to be outright excluding SRCC or at the very least sub-limit the exposure. Alternatively, there are an emerge of stand-alone political violence cover insurance market tailored solutions which are specifically designed for thus kind of threats. At least, the event limits can be set up. Indeed the financial impact of these widespread political unrest could be quickly become the important peril faces such as flood, windstorm, earthquake etc.
This topic should be considered carefully and it requests from all business players to find ways to mitigate risk in order to satisfy corporate governance requirements. Therefore we need to work closely with brokers and insurers in order to find the right solutions.
2020 is not over yet, and more challenges are expected in the future. Nonetheless, as we mentioned previously, something good about challenges is that they bring changes and only the strongest could survive out of it. We are very proud that, despite such a difficult year, CCR Re has achieved its objectives and has been upgraded from ‘A-‘ to ‘A’ by S&P during the crisis. On this same year, we successfully placed our first bond of 300 million euros with more than 150 investors, it strengthens our development strategy and allows us to better support our customers with a stronger solvency and more capacity.
