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The COVID-19 pandemic is expected to have a significant effect on the majority of insurance markets around the world, not limited to a major decline in the financial markets and an expected upsurge in claims related to travel, liability, workers’ compensation and business interruption (although most standard policies exclude infectious diseases). The full impact of the pandemic will not be known for some time.
Insurers expect gross premiums overall to reduce in 2020 due to COVID-19 although the impact will differ depending on the branch of business. Travel insurance premiums are expected to reduce as well as motor premiums (including fleet business) due to people not travelling during lockdowns. Workers' compensation premiums are adjusted according to definitive salary figures at the end of each year. With many people unemployed, if only temporarily, there will be a lower base on which to calculate insurance premiums. Other classes of insurance business that calculate premiums on business turnover will also suffer from the economic impact of the pandemic.
In terms of losses, reduced working and use of motor cars during the pandemic has driven a reduction in both workers' compensation and motor claims. Property insurance has also been largely spared as business interruption policies are only triggered through a material damage event so have not witnessed pandemic claims. There have, however, been claims resulting from event cancellations and potential claims under D&O and professional indemnity covers are expected (perhaps based on poor actions being taken by senior management to combat the pandemic). Premium rises are expected for these lines of business in 2021.
In response to COVID-19 in April 2020, the Belgian government-owned export credit agency Credendo announced that it would provide a 50% quota share reinsurance cover to private credit insurers to allow them to maintain their trade insurance credit commitments to Belgian clients until the end of 2020 at a pre-crisis level (ie EUR 40bn (USD 43.59bn) of cover). Subsequently, a further six-month extension has been agreed into 2021 with insurers maintaining EUR 39bn (USD 42.50bn) of capacity for the market. Reinsurers of Credendo will benefit from the arrangement as their treaties will take effect after the quota share.
The most important development for 2020-21 is the liberalisation of motor insurance rating, which was forced through at breakneck speed by the China Banking and Insurance Regulatory Commission (CBIRC) in September 2020. This led to an immediate 20% to 30% drop in average motor premiums in the final quarter of 2020 and is projected to reduce total motor premiums by 10% to 15% in 2021, particularly if there is no pick-up in new car sales following their 10.5% year-on-year decline in the first 10 months of 2020. Quite apart from the volume reduction, the new rating system is designed to trim insurers' operating margins and the commissions payable to agents. These factors are expected to produce underwriting losses for most insurers and to encourage motor business to migrate from small insurers to large and from dealer agencies to call centres and the internet.
Private medical premium growth rates were at 38.3% in the first three quarters of 2020 which represents a slowdown on the previous two years.
China has a large and diverse population of resident professional reinsurers comprising the state-owned China Reinsurance Group, two domestic start-ups and the branches of most of the world's leading reinsurers. Around 60% of non-life reinsurance is ceded to local reinsurers and 40% abroad. The market for agriculture reinsurance was set to be disrupted in 2021 by the establishment of new state-owned reinsurer called China National Agriculture Reinsurance Co which was due to take a 20% "agreed cession" of all agriculture premiums from 1 January. Because the leading onshore reinsurers make most of their profits from whole account and motor quota shares, the declining size and uncertain profitability of the direct motor market was expected to have a complicating effect on 2021 treaty renewals, especially when combined with shrinking capacity and hardening attitudes in the offshore reinsurance market.
COVID-19 has had little direct impact on non-life insurers: travel insurance volumes have been depressed, but there have been few business interruption losses. Real GDP was forecast to grow by around 1.7% in 2020 and 7.1% in 2021.
Insurers' difficulties in the motor market will be compounded by negative growth rates for credit and guarantee and personal accident and by the revised risk-based capital system known as C-ROSS II, which is due to be fully implemented by the end of 2021. The expectation during early 2021 was that C-ROSS II would lead to an average 20% to 30% reduction in solvency margin ratios: a serious adverse development for small to mid-size insurers with current ratios of around 150%. C-ROSS II will have a particularly marked effect on the capital requirements of insurers writing motor, health and credit and guarantee.
In November 2020, Samsung Fire & Marine signed an agreement with Tencent and several other technology and financial companies to convert its Chinese branch into a joint venture insurance company focused on digital distribution of non-life products. The proposed joint venture will be owned 37% by Samsung Fire, 32% by Tencent and 31% by other investors.
The effect of the COVID-19 pandemic on the non-life insurance market has been relatively modest. It is not thought that major business interruption losses affecting the local market arising from the COVID-19 pandemic are likely, because most policies are of the standard Association of British Insurers (ABI) type, requiring a material damage claim to be present as a prerequisite to a business interruption claim. In respect of motor business, although lockdowns reduced accident frequency, the marginal nature of the business has not so far prompted any compensatory action for policyholders.
In relation to the stand-alone (non-life) private medical insurance (PMI) market, there are reported to have been some, but relatively few claims from the insuring public thus far. Nevertheless, an increase in the PMI market loss ratio in 2020 is reported to be probable, from around 80% in previous years to 90% to 95% or thereabouts in 2020. Overall opinion from the insurance market in October 2020 indicated that state and military medical facilities have coped well with the pandemic.
Insurers are obliged to disclose to the insured the basic broker commission in the policy schedule as from 1 October 2020. From this date intermediaries are not permitted to change existing agreed commission rates by removing or adding additional incentives and bonuses. This is in addition to commission disclosure requirements to the regulator.
Real GDP was forecasted to grow by 5.40% in 2020 and a negative -8.30% in 2021.
The prospective economic scenario suggests the growth in the local non-life insurance market is likely to be zero or negative in 2020 and low or restrained in 2021: definite indications will not be available from the regulator until possibly 2022.
As Guam has a number of locally situated multinational hotel groups (some of which carry global coverage over and above locally issued policies), future business interruption claims activity in respect of COVID-19 cannot be entirely ruled out. As far as the local market is concerned, however, the general principle is that a material damage loss must precede any business interruption claim, so that major business interruption losses affecting insurances placed in the local market are reported to be unlikely.
In respect of property business, average premium rates in 2020 continued to harden due to a harder reinsurance market. On average it is reported that in 2020, property premium rates in Guam increased by around 20%. Local underwriters report that reinsurers are asking many more proposal questions than was the case in the past and are generally applying increased underwriting selectivity. Although local property underwriting capacity is not particularly extensive, property insurers are attempting to avoid having to place facultative reinsurance in the international market in order to keep primary property insurance pricing as low as is possible. It is reported that some reinsurers, such as Lloyd's, are proposing to introduce pandemic exclusion clauses for prospective renewals.
In relation to the major lines of liability insurance, premium rates are predominantly based on annual turnover so that although there have been some increases in premium rates, local market liability gross premium volume is likely to reduce in 2020 and possibly in 2021 in relation to business activities many of which have suffered significant falls in revenue during the COVID-19 pandemic.
Due to new legislation in 2020 affecting workers' compensation, rates are expected to increase. According to local reports they are likely to increase by between 20% and 25% on average. At present there is no indication that coverage limits will be changed, even though these have been consistently criticised by some politicians as being outdated and inadequate.
In the budget speech on 1 February 2021, the government announced that it would be raising the maximum limit on foreign shareholding in an insurance company from 49% to 74%. This would be accompanied by requirements that a majority of a foreign-owned insurer's directors and senior managers be Indians resident in the country and that at least half of the board members should be independent. There would also be rules about companies retaining a certain minimum proportion of profit in a general reserve. No timetable to implement these changes had been made public when this update was in preparation.
In February 2021, in the 2021-22 budget speech, it was announced that one of the three state-owned insurers (United India, National Insurance and Oriental Insurance) is to be sold, with local reports suggesting that this might be United India or Oriental Insurance. It has also been reported that consideration is also being given to the sale of GIC Re, in which the government owns a nearly 86% stake.
GIC Re increased its fire rates for 291 occupancies, in line with new burning costs issued by the Insurance Information Bureau (IIB), with effect from 1 January 2020. Costs rose by between 10% and 50% for most sectors and insurers have been charging corresponding increases in premium. The industry welcomed the change, as competition had lowered property rates to unsustainable levels, but the Automotive Tyre Manufacturers' Association brought a complaint against GIC Re to the Competition Commission of India (CCI), claiming that its increases were anti-competitive and abuse of its market dominance. In February 2021, the CCI dismissed the complaint, reflecting a similar judgement by the High Court made in response to a legal action relating to rate increases imposed by GIC Re on certain categories of industrial risk in 2019.
The COVID-19 pandemic and the associated economic contraction has resulted in a fall in non-life insurance premiums of 1.51% in the first six months of 2020. There has not so far been a significant claims impact on the market due to the pandemic apart from under credit insurance policies and for travel cancellation. It is possible that some claims may appear in 2021, for example, under D&O policies.
In 2020 market conditions turned for several classes of business with rates increasing in commercial property, construction, professional indemnity (particularly for professionals operating in financial sectors), directors' and officers' liability and marine cargo. Increases are particularly pronounced where there have been previous losses and/or facultative reinsurance is required outside of Israel.
In contrast rates for motor business continued to fall in 2020 due to fierce competition in the sector. These conditions led to a contraction in the motor market of 4.02% in the first six months of 2020. Other contributary factors to the reduction in 2020 was a fall in vehicle usage due to the pandemic, which has impacted usage-based premiums and also, according to market sources, fewer new vehicle registrations than would normally have been expected. There is also expected to be a reduction in motor accident frequency for 2020.
Medical malpractice and D&O insurance were important classes in 2020 with premiums increasing to approximately USD 175mn each.
There is increasing interest in cyber insurance with market sources estimating that Israeli companies spend USD 20mn to USD 30mn on cyber insurance. Warranty and indemnity cover is also seeing an increase in demand in Israel and is usually bought in respect of cross-border transactions.
There are now four direct insurers eschewing the use of agents and one aggregator acting as an online agent.
The merger of Compensa VIG and Seesam under the Compensa name was completed in summer 2020. It is understood that BTA Insurance, also part of VIG, will continue as a separate insurer for the near future.
With effect from 30 December 2020, all policies issued by Lloyd's relating to risks in the European Economic Area were transferred to Lloyd's Insurance Company SA (known as Lloyd's Europe), following approval from the High Court.
In November 2020, the fifth largest insurer in the UK, RSA, which is also a major player in the London Market, announced that it had agreed to be acquired by a combination of Intact Financial Corporation of Canada and the Danish insurer, Tryg A/S. Under the deal, which is subject to regulatory approval, RSA will be broken up, with its UK operations becoming part of Intact.
In November 2020 AMIS announced that the insurance sector was forecasting an estimated overall reduction of 3.1% in premium volumes by the end of 2020 as a consequence of the COVID-19 pandemic. It also reported that sales of motor and homeowners' policies had fallen by about 60% as policyholders focused their attention on purchase of medical expenses insurance.
In 2020 economic losses from the pre-existing downturn in industrial and agricultural production are expected to be compounded by the pandemic, with GDP expected to contract by up to 10.1%, before a slight recovery of 1.8% growth in 2021.
In September 2020 AMIS announced that premiums in the agriculture sector had fallen by 52% as at June 2020 following the withdrawal of the government subsidy to the sector.
Market sources reported that renewals in 2020 reflected the hardening reinsurance market globally. Although capacity was generally said not to be a problem, there were reportedly signs of reinsurers cleansing their portfolios, with rate increases of 10% to 20% being applied particularly to larger property accounts, 5% to 10% to general liability accounts and even 10% to 200% in the case of financial lines classes requiring facultative support. Facultative rates generally are said to have hardened, particularly in sectors such as energy, mining and power generation.
In October 2020 the CNSF approved the conversion of the bond insurer Fianzas Guardiana Inbursa into a writer of both bonds and surety business. Consequently the company was renamed Inbursa Seguros de Caucion y Fianzas, SA.
In late 2020 market sources also reported a concerted effort by Latin American reinsurers to apply stricter conditions in relation to cover for strikes, riots and civil commotions (SRCC). Events of civil unrest in Chile have led to increasing concerns that such events could be replicated in other Latin American countries, with reinsurers seeking to agree on a standardised wording for the region. It is proposed that this would adopt features already used in relation to catastrophe events, such as the use of annual limits and also hours clauses for a series of events.
At the end of September 2020 the Mexican government announced its intention to eliminate over 100 government-backed trusts, including the Natural Disaster Fund (Fondo de Desastres Naturales – FONDEN). Market sources have since indicated that the government is in discussions with the insurance sector with a view to finding alternative solutions for protection against natural disasters.
Economic growth is forecast in 2021 at 4% as a result of an improving global economic environment and further private sector investment in the LNG sector. The country is very exposed to the unfolding of the pandemic throughout southern Africa.
There is growing interest in microinsurance in Mozambique. By early 2021 the number of companies with licences to explore the microinsurance segment had increased from five to seven with Britam and Indico having become licensed.
According to preliminary figures from the Insurance and Pension Funds Supervisory Authority (Autoridade de Supervisao de Seguros e Fundos de Pensoes - ASF), non-life premiums (including accident and health) grew by just over 3% in 2020.
Non-life insurance premiums grew by 2.2% year-on-year in the first three quarters of 2020, notwithstanding the near extinction of outbound travel business.
The measures implemented by the Spanish government to contain the spread of COVID-19, together with the weakening world economic growth, significantly impacted all sectors of the economy. GDP contracted by 11% in 2020 but is expected to recover by 4.7% in 2021. Regarding the insurance market, early figures for 2020 indicate that although premium income declined for some non-life classes such as motor and those lines of business related to the slowdown of economic activity like credit, premium income for non-life insurance overall showed positive growth in 2020 compared to the previous year.
Severe snowfalls during January 2021 caused by a low-pressure system "Filomena" were estimated to have caused economic losses, in material damage and business interruption, in excess of USD 2.1bn. No detailed estimates of insured losses from the storm were available except that they would be at least into the tens of millions of dollars including agriculture. The Consorcio announced that snow was not a peril it covered, but floods resulting from the thaw would be. Insurers might see their own loss ratios impacted on policies covering damage from adverse weather conditions, whether wind, rain or snow.
Following the downgrade of Sri Lanka's sovereign rating to CCC, it was announced by the international rating agency Fitch Ratings in December 2020 that it had lowered the financial strength rating of Sri Lanka Insurance Corporation (SLIC) from B to CCC+. SLIC is said to have significant exposures to sovereign investments which are regarded as "high-risk". Fitch had previously downgraded SLIC from B+ to B in April 2020.
In March 2020 Zurich Santander Seguros Uruguay SA received authorisation from the Central Bank of Uruguay (Banco Central del Uruguay – BCU) to operate in bonds.
Companies have expressed a need for adequate legislation for the sector such as framework regulations to govern intermediation.
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