Fitch: 2020 global reinsurance sector outlook is ‘stable’
Rates in the global reinsurance market are improving—but a true hard market is some way away, according to the latest market sector report by Fitch Ratings.
At a briefing in London before the start of the Monte Carlo Rendez-Vous to unveil its Reinsurance Briefing 2019, Graham Coutts, senior director of insurance ratings, said that rates were improving, but that profitability remains pressured by a wide range of factors.
Coutts pointed out that after a mixed 2016, when the number of rating downgrades by Fitch was double the number of upgrades, there had been no rating movements in 2017, followed by four upgrades and no downgrades in 2018. So far, there have been two upgrades in 2019 from Fitch. As a consequence, he added, Fitch’s global rating outlook was “stable”.
According to Coutts, despite the fact that there was a substantial amount of catastrophe activity in 2017 and 2018, ranging from hurricanes to wildfires, there had not been the kind of across-the-board hardening of rates the market saw in 1992 after Hurricane Andrew, or in 2002 after the 9/11 terrorist attacks in 2001.
Instead, according to Fitch, rate increases have been more regional, with a slight uptick in the US and Asia-Pacific regions, while rates in the UK and Europe had flattened out or even declined slightly.
At the same time, investment returns remain low, with the UK, US and Germany all seeing recent declines in yields, to the point where yields in the latter had gone below 0 percent.
Coutts added that global reinsurance capital has remained stable in recent years, after a decade of steady growth. According to figures that Fitch obtained from Aon Business Intelligence and Aon Securities, in 2008 traditional capital in the market totalled $321 billion, while alternative capital was just $19 billion.
By 2018 traditional capital was $488 billion and alternate capital came to $97 billion. However, he pointed out, there was a certain amount of capital “trapped” due to some of the natural catastrophes that had hit the market. As a result in the first quarter of 2019 there was $512 billion in traditional capital and $93 billion in alternative capital.
In a statement Fitch said: “We expect the slowdown in the influx of alternative capital to the sector, one that has driven the growth of the insurance-linked securities market, to continue.
“The slowdown is due, in part, to investors’ growing uncertainty about the impact of climate change on insurance claims. There is mounting evidence that climate change is affecting insurance claims, with two successive years of record wildfire losses, and higher temperatures in recent years a likely contributory factor to increased hurricane and flood losses.”
