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COVID-19 pushes global reinsurers farther out on thin ice; sector outlook revised to negative

19 May 2020 S&P Global Ratings

Pandemic-related losses, combined with volatile capital markets, and lower investment returns, will likely prevent the global reinsurance sector from meeting S&P Global Ratings' earnings expectations for 2020.

"Once again, the sector will not earn its cost of capital this year, bearing in mind it has struggled in the past three years to do so due to large natural catastrophe losses and fierce competition," said S&P Global Ratings credit analyst Johannes Bender in the report published today, "COVID-19 Pushes Global Reinsurers Farther Out On Thin Ice; Sector Outlook Revised To Negative."

We now assume the global reinsurance sector will deliver a combined ratio of 101%-105% in 2020, or more if global insured COVID-19 losses accelerate beyond $30 billion for the wider (re)insurance sector.

Therefore, we are revising our sector outlook for global reinsurance to negative from stable, as we believe business conditions are becoming increasingly more difficult.

"We expect to take negative rating actions on reinsurers whose COVID-19 losses wipe out their earnings and become a capital event and that in our view won't be able to sufficiently rebuild capitalization over the next 12 to 24 months, as well as for those reinsurers that entered 2020 with an already historical weaker operating performance," said S&P Global Ratings credit analyst Taoufik Gharib.

That said, property/casualty reinsurance pricing is hardening, life reinsurance earnings remain stable so far, and capital for the sector remains robust, though lower, than at year-end 2019.

To develop our view of the global reinsurance sector, which is an overall indicator of credit trends over the next 12 months, we analyze the distribution of outlooks on ratings, existing sectorwide risks, and emerging risks. Our negative view therefore indicates we expect to take additional negative rating actions on reinsurers over the next 12 months.

This report does not constitute a rating action.

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