Concerns over COVID-19 leads to global reinsurance outlook downgrade

Fitch Ratings has revised its outlook of the global reinsurance sector to negative from stable citing "increased concerns over COVID-19" and related impacts on the credit quality of reinsurers, while noting that the sector faced pressures from a competitive market environment and low investment yields even before the coronavirus outbreak.

The agency is in the process of analysing the impact of the coronavirus pandemic on capital markets volatility, interest rates, market liquidity and insured claims/reserves.

Fitch's outlook for ratings levels in the sector remains stable. However, it expects the ratings of some reinsurers to be placed on rating watch negative or even downgraded.

Currently, the agency believes that the ratings of reinsurers will be less impacted by the coronavirus pandemic than those of life and health insurers, which are sectors whose rating outlooks were recently revised to negative. However, it noted that this does not imply that no ratings in the sector will be impacted.

According to Fitch, the reinsurance sector has benefited from a trend of recent price improvements, very strong capital adequacy, robust risk management and generally solid business profiles going into 2020.

It views the underwriting loss exposure (contingency/event cancellation, travel/accident, trade credit, surety and business interruption) from the virus as "manageable" for reinsurers given the relatively small size of the exposed lines, and the use of policy limits/sub-limits and exclusions.

Fitch noted that even prior to the coronavirus outbreak the sector faced pressures from a competitive market environment and low investment yields that limited profitability.