Rating agency (re)insurer COVID-19 driven actions differ very substantially (so far)

Ratings activity from the major agencies has differed very substantially in the first months of the pandemic’s global impact

Stuart Shipperlee Head of Analytics

Rowena Potter Senior Consultant Analyst

Despite highly similar headline views on the main drivers of the credit rating impact of COVID-19 on (re)insurers, in practice rating activity from the major agencies has differed very substantially in the first weeks of the pandemic’s global impact.

At Litmus we have been following this very closely, including which rating actions appear to us to be clearly COVID-19 driven, and would note the following:

• As of 28th April, Fitch has been by far the most active in terms of negative actions, with 5 downgrades (3 of which also continue to have a negative outlook), 47 negative changes in rating outlooks and 3 negative credit watches.

• By contrast, A.M. Best has issued only one downgrade and one negative outlook change.

• S&P and Moody’s fall somewhere in the middle (although S&P has issued several insurer downgrades driven by sovereign or bank rating actions).

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The differences thus far may reflect differences in each agency’s approach to reviewing the potential impact of the pandemic (Best, for example, has conducted both a COVID-19 impact survey and a BCAR* based stress test across its entire rating universe and is now reviewing the insurer specific outcomes).

Differences in approach to sovereign driven rating actions and “country risk” within the agencies’ (re)insurer rating methodologies may also be playing a role.

Actions by the agencies on their “sector” or “segment” outlooks have also varied widely (with Best and Fitch being most active).

To discuss how rating agency views of the consequences of COVID-19 may impact your own rating, or those of your (re)insurance markets and counterparties, contact us at info@litmusanalysis.com

*The “BCAR” is the output of A.M. Best’s proprietary capital adequacy model. The acronym also tends to be used for referen