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Five-year average cat impact on CoRs to continue rising in 2021: Willis Re

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The five-year moving average impact of cat events on reinsurers’ combined ratios rose from 6% in 2017 to 9% in 2020 and is likely to “move up again” this year, according to Willis Re.

In a note exploring reinsurance trends during the first nine months of this year, the intermediary said most reinsurers in the scope of its research were likely to declare 2021 an above-normal cat year.

global insurers II bar chart nov23 2021.PNG

For those companies, over the past five years, cat experience has generally exceeded normal levels for three to four years.

Willis Re said it expected that trend to continue to drive a heightened focus on modelling exposure, especially for secondary perils and climate change, the adequacy of reinsurance in place and price adequacy.

The broker noted that, in the nine months to 30 September, year-on-year underwriting results improved despite higher cat losses in Q3 this year than in Q2 2020.

The report, which tracks the performance of the world’s largest reinsurers, found that the nine-month average combined ratio in 2021 was 95.8%, compared with 99.3% at the same point in 2020.

While Willis Re noted that year-on-year trends are not a good proxy for underlying accident year loss ratio improvement, it said it was clear higher premium growth from the economic recovery and improving expense trends had helped combined ratios this year.

Elsewhere in the report, Willis Re noted that the average solvency ratio for European reinsurers at the nine-month mark increased to 220% compared with 209% at the end of 2020, thanks to rising risk-free interest rates and equity markets.

It added that, given reinsurers’ expectations for continued favourable pricing next year, some of the capital buffer built up is likely to be used for further top-line growth.

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