In the run-up to the 2020 renewal season and what would normally be the Monte Carlo industry get-together, the four global rating agencies have as usual published their views on the Global Reinsurance market.
A key element of this is the updating of sector/segment/industry Outlooks. As Litmus has explained in previous publications, the exact definitions of these Outlooks vary between agencies, but they all seek to give the market some idea of the expected trend in ratings over the short to medium term. As of September 2020, there is some variance in agency views, although there is a good deal of agreement on the key market drivers.
Both S&P (Sector Outlook) and Moody’s (Industry Outlook) consider the outlook to be Negative, with S&P having changed its outlook from Stable in May 2020 and Moody’s in September 2020. By contrast, AM Best (Market Segment Outlook) is maintaining its Stable view. Fitch has a Negative Sector Outlook but a Stable Rating Outlook, the latter defined as meaning that negative outlooks on individual rated companies do not outweigh positive outlooks by more than 20%. On the face of it, this implies that S&P and Moody’s expect a larger number of negative rating actions on reinsurers. However, AMB stresses that its outlook speaks to market trends rather than movements in individual ratings, and that its Stable view relates to the “new normal”, ie recent lower ROE expectations. In terms of the main factors the agencies have highlighted that feed into their outlooks, there is a good deal of agreement. All cite, amongst other things, uncertain and rising Covid-19 losses, reduced prior year reserve releases, mounting cat losses and low investment returns on the negative side. On the positive side the main drivers are strong capital and an expected continued hardening of prices. AMB believes that these headwinds and tailwinds balance each other out, based on its confidence in the upward pricing momentum. The other agencies are generally more cautious and believe that prospects for the sector are more negative.
Rowena Potter, Senior Consultant +44 (0) 7771 885882