Global reinsurance outlook negative despite hardening – Moody's

Ratings agency Moody's has changed its outlook of the global reinsurance sector to negative from stable, citing numerous challenges, mainly weakening profitability amid the ongoing pandemic, that outweighs the benefits of higher pricing. Coronavirus-related losses and other catastrophe events have already depleted the annual catastrophe loss budgets of many firms. On top of that the reinsurance sector faces challenges including low interest rates, shrinking reserve releases and uncertainty around ultimate pandemic-related losses. Moody's said that despite stronger reinsurance pricing, the operating environment for the reinsurance sector will be challenging over the next 12 to 18 months. Although losses associated with economic shutdowns that began in March, primarily arising from event cancellation, property (with affirmative business interruption), travel and accident and health coverages, are likely to be fairly clear at this point, reinsurers will take...

...additional charges in coming quarters as the impact of the pandemic continues to unfold and the extent of the economic downturn becomes more certain.

The agency, however, noted that the ultimate impact of the coronavirus pandemic on the reinsurance sector is difficult to estimate as the crisis affects multiple lines of business and geographic regions. Many business interruption coverage issues have yet to be resolved and there are still significant downside risks to the economic recovery.

Meanwhile, the weather-related catastrophe events have become more frequent due to climate change. For reinsurers, this creates risk management challenges associated with assessing, measuring and mitigating catastrophe risks, and has heightened the volatility of firms' results.

"Uncertainty around ultimate coronavirus-related losses, along with low interest rates, shrinking reserve releases and more expensive retrocessional coverage will all be a drag on reinsurers' profitability in the next 12 to 18 months, despite stronger reinsurance pricing," said James Eck, VP, senior credit officer at Moody's. "Coronavirus-related losses and other catastrophe events have already depleted the annual catastrophe-loss budgets of many firms."