Fitch Ratings releases 2020 outlook for global reinsurance sector
Fitch Ratings outlines its predictions for the reinsurance market in 2020, examining price changes, credit portfolios and other components.
Fitch Ratings asserts the outlook for the global reinsurance sector in 2020 is stable. In their report, “Fitch 2020 Outlook: Global Reinsurance,” Fitch says it expects premium rates will continue to rise slightly, but profitability will remain subdued as risk-adjusted prices and investment yields remain low amid a weak global economic outlook.
The reinsurance sector’s credit profile is strong, supported by very strong capital adequacy, robust risk management and generally solid business profiles, Fitch says.
2019 saw a rise in reinsurance prices after two consecutive years of significant catastrophe losses. As a result of these heavy loss years, terms and conditions are starting to tighten.
The improved pricing is being driven mainly by price increases in the primary insurance markets after several large global insurers repositioned their portfolios, and Lloyd’s of London carried out a market-wide review of profitability at its syndicates.
“We expect the slowdown in the influx of alternative capital to the sector, one that has driven the growth of the insurance-linked securities (ILS) market, to continue. The slowdown is due, in part, to investors’ growing uncertainty about the impact of climate change on insurance claims,” the report states.
Climate change is impacting claims, Fitch says
In their 2020 outlook report, Fitch touches on a hot topic in the insurance industry: climate change. Fitch says there is mounting evidence that climate change is affecting insurance claims, with two successive years of record wildfire losses, and warmer temperatures in recent years likely contributing to increased hurricane and flood events; thus, increased catastrophe losses.
Finally, Fitch concludes alternative capital from investors looking to diversify away from traditional financial markets has added to overcapacity, to the detriment of reinsurers’ margins. A lasting slowdown could reduce competitive pressure and help to support pricing momentum.
The report, Fitch 2020 Outlook: Global Reinsurance, is available on Fitch Rating’s website.
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