LONDON: Reinsurance, and to some extent, insurance, has thrived on globalisation with limited barriers to entry.

With this has come an increasing interconnectivity of risks between markets and participants, and the consequences of a higher risk of contagion between insurance and other sectors. As these risks have become intertwined in increasingly complex relationships, insurers cannot expect to be immune to economic slumps and supply chain disruptions, according to a new AM Best report.

In a new Best’s Special Report, “COVID-19 Highlights Weaknesses in Insurers’ Enterprise Risk Management,” AM Best notes that although enterprise risk management (ERM) has evolved rapidly over the past decade, the COVID-19 pandemic has served to emphasise that (re)insurers still can be affected by “unknown unknowns” and “unexpected accumulations.”

Mahesh Mistry, senior director, criteria, AM Best, and report author, said: “Conventional wisdom had led most observers to expect that the greatest impact of a pandemic would be to the life and health sector, but in reality, it is likely that property/casualty insurers and reinsurers will feel the brunt of the impact to this event. In turn, COVID-19 is testing insurers’ ERM approach, practices and resilience to current market conditions.”

The report concludes that while the insurance industry is well-capitalised, the impact from the pandemic will affect insurers’ balance sheet and operating performance to varying degrees.

However, AM Best believes lessons learnt from the past and by this pandemic should equip companies to better understand their exposures and adopt even more robust risk practices in the near future.