Fitch Ratings Has Stable Outlook for Global Reinsurance Sector in 2021

Fitch Ratings says it has a stable outlook for the global reinsurance sector in 2021, based on hardening pricing and stabilizing pandemic-related claims but depressed investment income.

Fitch attributed the downturn in reinsurers' investment income to "ultra-low interest rates and deteriorating asset quality."

The rating agency said its 2021 outlook for the reinsurance sector considers underlying fundamentals expected in 2021 relative to actual fundamentals in 2020. The sector outlook also reflects Fitch's expectation that the underlying fundamentals of major developed non-life primary insurance markets—the main source of business for reinsurers—will stabilize in 2021, the rating agency said.

Fitch noted that the reinsurance industry began to raise prices in January 2020 due to higher natural catastrophe claims and concerns over reserve adequacy and loss severity for US casualty business.

"Price increases have gained momentum through the various renewal seasons since the onset of the pandemic, and we expect the hardening market to continue into 2021," Fitch said. "Demand for reinsurance is likely to increase due to heightened uncertainty linked to the pandemic and primary insurers' stronger ability to purchase reinsurance given increases in their own pricing."

Fitch said the global reinsurance sector's capital strength "has remained largely unscathed despite substantial pandemic-related underwriting losses in several segments." Those segments include contingency/event cancellation, travel, trade credit and surety, business interruption, and mortality. A series of capital increases and the recovery of financial markets from spring's lows contributed to that capital strength, Fitch said.

"Changes in reinsurance terms and conditions, notably the exclusion of pandemic cover in new and renewed contracts, should progressively reduce the potential for future property and casualty reinsurance claims stemming from the pandemic," Fitch said. "Nevertheless, the uncertainty around ultimate losses from the pandemic remains high."