On Friday, Fitch Ratings announced a dimmer “sector outlook” for global reinsurers—changing it to negative from stable, pointing to increased concerns over COVID-19.

Rating agencies like Fitch offer two types of outlooks for segments of the insurance and reinsurance markets—sector outlooks and rating outlooks. “Sector outlooks” are “performance-based outlooks or profit expectations” based on operating fundamentals, Fitch representatives have explained to Carrier Management in the past. Rating outlooks describe the possibility of near-terms upgrades and downgrades.

At present, Fitch said that financial impacts of COVID-19, the disease caused by the coronavirus, hasn’t caused the rating firm to change its rating outlook for global reinsurers, which remains stable. The announcement did say, however, that Fitch expects to revisit the rating outlook again as its analytical work related to the coronavirus pandemic advances.

According to Friday’s statement, Fitch has begun the process of reviewing individual ratings relative to assumptions with respect to the impact of the coronavirus pandemic on capital markets volatility, interest rates, market liquidity, and insured claims and reserves.

“Fitch will compare the pro-forma profile of an insurer relative to existing ratings sensitivities established by the agency. If sensitivities are notably breached, ratings will be placed on Rating Watch Negative or downgraded.”

While in the early stages of this review, Fitch currently believes that global reinsurer ratings will be less impacted by the coronavirus pandemic than those of life and health insurers. Fitch has already revised life and health insurer rating outlooks to negative.

The announcement stressed, however, that Fitch’s stable rating outlook for the reinsurance sector does not imply that no ratings in the sector will be impacted.

“Ratings currently on a positive rating outlook across all insurance sectors are being prioritized during the review process. In addition, Fitch expects the ratings of some reinsurers will be placed on Rating Watch Negative. Near-term downgrades are possible but currently viewed as unlikely,” the announcement said.

Fitch notes that reinsurers come into the rating review process on a strong footing, benefiting from recent price improvements, very strong capital adequacy, robust risk management and generally solid business profiles.

In Fitch’s view, virus-related loss exposure from risks assumed for lines like contingency/event cancellation, travel and accident, trade credit, surety and business interruption are “manageable for reinsurers given the relatively small size of the exposed lines and the use of policy limits, sublimits and exclusions.”

Source: Fitch Ratings