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Fitch: Global reinsurance sector outlook remains negative for 2021

Citing losses from the coronavirus (COVID-19) pandemic, Fitch Ratings has said that the outlook for the global reinsurance sector remains negative for 2021. In a new report, the credit rating agency said that the mounting losses from the pandemic, the effect of the global economic contraction on premium volumes, and ultra-low interest rates, will weigh on the financial performance of the sector.

However, it said Fitch-rated reinsurers were generally well-positioned to absorb pandemic- related losses – helped by strong capital – and most rating actions over the next 12 months will probably be affirmations, barring an extreme catastrophe event or a severe deterioration of the Coronavirus crisis. “Most claims reserves booked by reinsurers in 1H20 were classified as incurred but not reported, as they were pending receipt of claims notifications for anticipated losses.

It could take several months for the total to become clear as many claims are likely to be long-tail. “Business-interruption and liability claims could be subject to lengthy legal processes, while credit and surety losses will take time to materialise after the economic contraction. Moreover, a worsening of the pandemic, with further widespread lockdowns, could lead to significant new claims,” the agency stated. It noted that traditional reinsurance capital proved resilient in 1H20, declining only by a low single-digit percentage despite pandemic-related losses and financial market volatility.

The agency also pointed out that the financial market recovery that began in late March and the issuance of more than $15 billion of subordinated and equity capital largely offset the pandemicrelated claims. According to Fitch, “riskadjusted price increases have been gaining momentum since the start of pandemic, as reinsurers move to protect earnings from pandemic-related claims and lower investment income. We expect the hardening market environment to continue into 2021.

“Most claims reserves booked by reinsurers in 1H20 were classified as incurred but not reported, as they were pending receipt of claims notifications for anticipated losses. It could take several months for the total to become clear as many claims are likely to be long-tail.

“Business-interruption and liability claims could be subject to lengthy legal processes, while credit and surety losses will take time to materialise after the economic contraction. Moreover, a worsening of the pandemic, with further widespread lockdowns, could lead to significant new claims. “Even before the pandemic, insurers and reinsurers would have had to increase prices to reflect higher natural catastrophe claims and doubts over reserve adequacy in light of growing loss severity for US casualty insurance.”

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