Fitch: ratings outlook is promising but underwriting cycle is flatter

The rating environment is more positive than it has been for some time, Brian Schneider, senior director, insurance, Fitch Ratings, told Monte Carlo Today.

“A lot of individuals involved in the business don’t remember the last time there was a hard market,” Schneider said.

“We’re getting potentially towards a hard market—it’s probably more of a firming market at this point but we’ll see how things go through with pricing into next year.”

He noted that the market is not experiencing the more capital-driven aspects seen in previous hard markets that followed big loss events.

“We certainly have had big loss events but they haven’t drained the level of capital that they did in 2001 with 9/11 or with the hurricanes in 2005.

“They were capital-defining events which followed the more normal cycle of capital depletion, fewer supply opportunities for price increases, and new capital coming in with the formation of companies, particularly in Bermuda,” he explained.

“We have certainly seen levels of losses that were similar, if not higher, over the last two years but there hasn’t been that capital drain, and part of that is the way companies now manage capital, which is smarter.

“There’s better risk management and they’re ceding a lot more business to the capital markets than they have before.”

Graham Coutts, senior director, insurance ratings at Fitch, agreed there is strong capitalisation in the sector.

“What we’ve seen following the 2017 and 2018 losses is that overall levels of capital in the industry haven’t deteriorated that much,” he said.

“People have been willing to recapitalise and more money is flowing back into the sector. A consequence of that is that pricing does remain under pressure, so what we see is a much flatter underwriting cycle than we might have seen in the past.

“It’s a reflection of the fact that although you have these big losses, the reinsurers are quite resilient to those losses and there aren’t such big opportunities for rate improvements following them.

“An interesting theme of recent years is that following losses you see rate improvements in the particular geographical areas and lines of business that took the hit, but not the wider rate hardening you may have seen in the past.

“You don’t see across-the-board rates improving on all sectors and all lines,” he concluded.