Reinsurers treading on 'thin ice' after COVID-19 exacerbates financial struggles: S&P

Analysts at S&P Global believe that COVID-19 pandemic-related losses, coupled with volatile capital markets and lower investment returns, will likely prevent the global reinsurance sector from meeting its earnings expectations for 2020.

"Once again, the sector will not earn its cost of capital this year, bearing in mind it has struggled in the past three years to do so due to large natural catastrophe losses and fierce competition," said S&P's credit analyst Johannes Bender.

The agency has revised its sector outlook for global reinsurance to negative from stable, as it believes that business conditions are becoming increasingly more difficult.

S&P anticipates that the global reinsurance sector will deliver a combined ratio of 101-105 percent in 2020, or more if global insured COVID-19 losses accelerate beyond $30 billion for the wider re/insurance sector.

"We expect to take negative rating actions on reinsurers whose COVID-19 losses wipe out their earnings and become a capital event and that in our view won't be able to sufficiently rebuild capitalization over the next 12 to 24 months, as well as for those reinsurers that entered 2020 with an already historical weaker operating performance," said S&P Global Ratings credit analyst Taoufik Gharib.

The agency, however, noted that property/casualty reinsurance pricing is hardening, life reinsurance earnings remain stable so far, and capital for the sector remains robust, though lower, than at year-end 2019.