Fitch Ratings has revealed in a new report that the outlook for the global reinsurance sector remains negative for 2021.
This, according to the renowned credit ratings agency, is due to the mounting losses from the Coronavirus pandemic, the effect of the global economic contraction on premium volumes, and ultra-low interest rates, which kit said will weigh on the financial performance of the sector.
However, Fitch-rated reinsurers are generally well-positioned to absorb pandemic-related losses – helped by strong capital – and most rating actions over the next 12 months will probably be affirmations, barring an extreme catastrophe event or a severe deterioration of the Coronavirus crisis.
“The sector’s 1H20 results highlighted that the ultimate amount of insured losses from the coronavirus pandemic remains highly uncertain and may not be fully reflected in reinsurers’ reserves.
“Most claims reserves booked by reinsurers in 1H20 were classified as incurred but not reported, as they were pending receipt of claims notifications for anticipated losses. It could take several months for the total to become clear as many claims are likely to be long-tail.
“Business-interruption and liability claims could be subject to lengthy legal processes, while credit and surety losses will take time to materialise after the economic contraction. Moreover, a worsening of the pandemic, with further widespread lockdowns, could lead to significant new claims.
Traditional reinsurance capital proved resilient in 1H20, declining only by a low single-digit percentage despite pandemic-related losses and financial market volatility. The financial market recovery that began in late March and the issuance of more than USD15 billion of subordinated and equity capital largely offset the pandemic-related claims.
“Risk-adjusted price increases have been gaining momentum since the start of pandemic, as reinsurers move to protect earnings from pandemic-related claims and lower investment income. We expect the hardening market environment to continue into 2021.
“Even before the pandemic, insurers and reinsurers would have had to increase prices to reflect higher natural catastrophe claims and doubts over reserve adequacy in light of growing loss severity for US casualty insurance.”
By Laud Nartey|3news.com|Ghana with additional files from Fitch Ratings