Hardening to continue into 2021 but global reinsurance outlook remains negative, says Fitch
The hardening market is expected to continue into 2021, but growing COVID-19 related losses and the global economic contraction will weigh on the financial performance of global reinsurers, Fitch Ratings has warned.
The ratings agency stated that the outlook for the global reinsurance sector remains negative for 2021, citing "mounting losses from the coronavirus pandemic, the effect of the global economic contraction on premium volumes, and ultra-low interest rates".
Fitch turned negative on the global reinsurance outlook back in March due to increased concerns over COVID-19 and related impacts on the credit quality of reinsurers.
The agency noted that the sector's first half 2020 results highlighted that the ultimate amount of insured losses from the coronavirus pandemic remains "highly uncertain and may not be fully reflected in reinsurers' reserves".
"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," Fitch said. "It could take several months for the total to become clear as many claims are likely to be long-tail."
Meanwhile, the 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.
Furthermore, a worsening of the pandemic with further widespread lockdowns could lead to significant new claims, warns Fitch.
Fitch expects the hardening market environment to continue into 2021.
"Risk-adjusted 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," it said.
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