Pandemic-related losses at the four major reinsurers 'larger than originally anticipated', says Fitch

The first half and second quarter 2020 results for the big four European reinsurers revealed “considerable pandemic-related claims”, although their capital remained resilient, said Fitch Ratings.

The ratings agency warned that H1 2020 losses from COVID-19 claims had been building for Munich Re, Swiss Re, Hannover Re and SCOR. However, Robert Mazzuoli, director at Fitch Ratings, said: “We believe that the pandemic remains an earnings event despite the high degree of uncertainty on ultimate losses. The underlying financial performance of the four major reinsurers remains strong as does their capitalisation.”

The differences in exposure to lines of business affected by the pandemic means the pandemic’s impact on the four reinsurers varied significantly.

Fitch said the reinsurers' credit fundamentals were mostly in line with its original assessment at the beginning of the pandemic, although pandemic-related losses were larger than the ratings agency originally anticipated. Fitch believes that the pandemic is an earnings event, even though the final losses are highly uncertain. The underlying financial performance of the four major reinsurers remains strong, as does their capitalisation.

All four reinsurers reported an accelerating price momentum for the June and July 2020 renewals. The industry has undertaken a more disciplined approach so as to protect earnings from pandemic-related claims and lower investment income, Fitch added.

Global capital markets are still accessible for reinsurers needing capital raises to strengthen their balance sheets or fund new growth. Fitch estimated that more than $15 billion have been raised and that, as long as favourable market conditions persist, the agency expects this figure to increase.