Moody’s Investors Service has changed its outlook for the global reinsurance sector to stable from negative as a result of increasing reinsurance prices and solid capitalisation. Fitch, meanwhile, has revised its outlook to improving from stable.
Moody’s said the global economic rebound will support the sector’s earnings, pointing out that the economic recovery is fuelling demand for primary insurance, particularly commercial cover, pushing up reinsurance demand in turn.
Moody’s reinsurance sector’s outlook was moved to negative a year ago as a result of the coronavirus pandemic. But the ratings agency said the rollout of coronavirus vaccines has reduced uncertainty around ultimate Covid-19-related losses, a key driver of last year’s negative outlook.
“Healthy price increases will drive stronger earnings through 2022 as the post-pandemic economic recovery and recent significant catastrophe losses fuel fresh demand for reinsurance,” said Helena Kingsley-Tomkins, VP senior analyst at Moody’s. “The sector’s capitalisation remains solid, with solvency ratios resilient in a range of stress scenarios.”
Moody’s noted that property reinsurance prices continue to climb, driven by recent natural catastrophe losses, and a re-evaluation of secondary peril risks, including winter storms, flooding and wildfires. It added that casualty pricing also remains strong across most lines because of higher demand, loss cost trends and low investment yields.
Moody’s said that uncertainty over Covid liabilities has diminished although pandemic-related claims continue to affect earnings for some large multiline reinsurers in 2021, driven by higher-than-expected mortality claims. It noted that the pandemic has caused reinsurers to take a more prudent stance towards systemic risk management, including communicable disease, cyber events and climate change.
“While the economic recovery is positive for earnings overall, it will push up claims relative to 2020. At the same time, the frequency and severity of natural catastrophes are becoming more unpredictable, partly because of climate change. These factors could limit further improvements in underwriting profitability,” said the agency.
It concluded: “Reinsurers’ earnings are vulnerable to claims inflation and natural catastrophe risk, which is increasingly influenced by climate change. Economic recovery and price rises support profit improvement. Healthy, albeit moderating, price increases will drive stronger earnings through 2022.”