We expect to affirm most reinsurers’ ratings in 2021 and into 2022, barring extreme natural catastrophes. Fitch-rated reinsurers have generally been well-positioned to absorb pandemic-related losses so far, and uncertainty over the ultimate losses is diminishing for three main reasons.
Firstly, the progress on vaccination, particularly in Europe and North America, has reduced the risk of excess mortality claims in life reinsurance, despite the spread of the Delta variant. Secondly, infectious disease exclusions in renewed contingency and business-interruption treaties have mostly eliminated the risk of new pandemic-related claims from these business lines. Thirdly, the business-interruption losses reported so far in 2021 have been within expectations factored into incurred-but-not-reported claims reserves set aside in 2020.
Fitch expects the sector’s combined ratio, normalised for large losses, to improve by 2pp–3pp in 2021 and another 1pp–2pp in 2022 as price increases gradually feed into underwriting margins. However, price rises are slowing due to strong capital supply and recovering profitability, and we expect risk-adjusted prices to remain largely unchanged in 2022.
Reinsurance terms and conditions have tightened, with infectious disease and silent cyber coverage excluded from many renewed treaties. Renewals are also starting to be affected by ESG considerations, with some reinsurers reducing or withdrawing facultative reinsurance cover related to fossil fuels.
The report, “Fitch Ratings 2022 Outlook: Global Reinsurance”, is available at www.fitchratings.com or by clicking the link above.