Fitch Ratings' Outlook for Reinsurers' Fundamentals Turns Negative

Black line graph with red pencil and red arrow showing negative trend line

March 27, 2020

Black line graph with red pencil and red arrow showing negative trend line

Fitch Ratings has revised its outlook for the underlying fundamentals of the global reinsurance sector to negative from stable due to increased concerns over COVID-19—the disease caused by the novel coronavirus—and its related impacts on reinsurers' credit quality.

Fitch's outlook for the ratings levels in the reinsurance sector remains stable, the rating agency said, though it expects to revisit the sector's rating outlook again as its analytical work related to the coronavirus pandemic advances.

Fitch said that it's reviewing its insurance ratings relative to assumptions with respect to the impact of the coronavirus pandemic on capital markets volatility, interest rates, market liquidity, and insured claims and reserves. The rating agency said it's at the early stages of that review.

At present, Fitch said it believes that reinsurers' ratings will be less affected by the coronavirus pandemic than those of life and health insurers. Fitch recently revised the rating outlooks of the life and health insurance sectors to negative. Fitch noted, however, that its stable rating outlook for the reinsurance sector does not suggest that no ratings in the sector will be affected by the pandemic.

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

The rating agency said it views the reinsurance sector's exposure to underwriting loss in areas like contingency/event cancellation, travel/accident, trade credit, surety, and business interruption due to the virus as manageable for reinsurers given the relatively small size of the exposed lines and reinsurers' use of policy limits/sublimits and exclusions.

March 27, 2020