Speaking to The ReInsurer, Mazzuoli forecast the financial performance of reinsurers will continue to be hampered by uncertainty over coronavirus liabilities which will add yet another “layer of problems” which need to be digested by the sector.

“We believe that this year and probably next year the sector will find it hard to earn its cost of capital,” Mazzuoli said in a video interview.

Mazzuoli highlighted that most claims reserves booked over the first half of 2020 were incurred but not reported and said that it could take a very long time for the ultimate loss to be understood, with many claims likely to be long-tail.

“It’s still a walk in the dark,” he explained. Business interruption, credit and surety, liability lines and even mortality claims remain an uncertainty.

“We do not know for sure how the impact of the pandemic is going to affect those lines of business,” he added.

Uncertainty over Covid-19 claims will exacerbate pre-existing market concerns including social inflation claims trends in the US and three years of heightened natural catastrophe losses, which have depressed reinsurers’ returns. 

“We’ve seen social inflation in US liability pick up, we’ve seen nat cat claims being above average in 2017 and 2018 – it all adds pressure on the sector to re-establish profitability,” he added.

“We’ll see these repercussions in the price levels and in the terms and conditions that come into the market.”

On a positive note, Mazzuoli provided a bullish outlook on market hardening. Price improvements have accelerated at the April, June and July renewals, he said, noting that these improvements have not been limited to loss affected lines and are now spreading to non-loss affected lines and with terms and conditions also improving in reinsurance.

“There are clear signs that we have entered a hard market,” he said. “We will see further price improvements and better terms and conditions at the January renewals which are the most important.”

Traditional reinsurance capital proved resilient in the first half of the year, Mazzuoli said, thanks largely to the broad recovery across financial markets that began in late March and the issuance of new capital.

But trapped capital in the alternative remains a key concern, he explained.

“The availability [of traditional capital] has largely remained unchanged,” he said. “On the alternative capital side there has been a small decline. This has mainly been down to structural problems the sector has, in particular to trapped capital where certain claims have not been steeled to the final stage.”

The alternative capital markets space will need to find solutions to securitizations in order to remain liquid, he said.