Reinsurance sector won’t earn cost of capital in 2020, says Fitch

The global reinsurance sector will fail to earn its cost of capital in 2020 due to the COVID-19 pandemic, according to a forecast by Fitch Ratings.

Fitch projected that financial performance would be impacted by mortality claims and losses from event cancelation, business interruption, credit and surety insurance, and financial-market disruption due to the economic impact of COVID-19-related lockdown measures. The pandemic follows three years of heightened natural catastrophe losses and rising US casualty claims, which impacted returns in 2017-2019, Fitch said.

Fitch conducted a review of global reinsurers’ ratings in April and May due to the pandemic. The ratings agency took negative rating actions on six of the 22 reinsurance groups reviewed.

“There were two one-notch downgrades (with outlooks now stable), three affirmations but with outlooks now revised to negative, and for one group the Insurer Financial Strength (IFS) rating was placed on rating watch negative,” Fitch said.

The main driver for the negative rating actions was deteriorating financial performance, Fitch said.