On the surface, COVID-19 may seem to have had a limited effect on New Zealand’s insurance market – however, according to Dean Edwards, head of broker at Ando Insurance, the pressure on global reinsurers has had a much more significant impact on New Zealand’s highest-risk areas than most realise.
Edwards says that global reinsurers were already under significant pressure before COVID-19 hit, and are currently facing one of the worst periods of loss in their history. With major weather events already being a major concern, the “double whammy” of a pandemic has only added more strain to an already struggling sector.
“The reality is that the big reinsurers really set the scene for the global insurance market, and they’ve really been suffering over the past three years in terms of lack of underwriting profits,” Edwards commented.
“Their underwriting results barely covered the cost of their capital, and there have been growing concerns around climate change and major weather events happening across the world. Pre-COVID, there was pressure on the big reinsurers anyway.”
“Then, of course, what happened in February and March with the COVID release around the world was that it was a double whammy in terms of the effect on their balance sheets and investments, as well as actual underwriting losses,” he explained.
“With the pre-COVID issues faced by the reinsurance market, coupled with them facing what they believe is probably one of the largest losses ever faced by the reinsurance market, there is global pressure right across the board.”
Edwards noted that most of the major global reinsurers play heavily into the programmes of retail insurers in New Zealand – therefore, any pressure they feel will have a direct impact on the New Zealand insurance market.
“Whatever happens in the global reinsurance market affects us directly,” Edwards said.
“The direct result of that is that reinsurers will look at their risk appetite, so they’re really looking at what they need to do to maintain their credit ratings.”
“The instant reaction is reduction in capacity to high-risk areas, and that area in New Zealand is the cost of catastrophe cover,” he said.
“They will also turn to certain sectors in the liability market – property, construction, etc. Sector by sector, we’re seeing a direct impact on those rates.”
