Fitch Ratings revised its outlook for both the underlying fundamentals of the United States property & casualty (P&C) insurance sector and the sector outlook of the global reinsurance sector to negative from stable. The outlook revision is due to concerns over COVID-19 and related impacts on the near-term performance and credit quality of insurers and reinsurers.
While Fitch’s outlook for rating levels in both sectors remains stable, it expects to revisit the rating outlook again as its analytical work related to the coronavirus pandemic advances.
Fitch is in the process of reviewing its insurance ratings relative to assumptions with respect to the impact of the coronavirus pandemic on capital markets volatility, interest rates, market liquidity and insured claims/reserves. It is in the early stages of this review.
Currently, Fitch believes the ratings of U.S. P&C insurers and global reinsurers will be less impacted by COVID-19 than those of life and health insurers. However, Fitch’s stable rating outlook for the insurance and reinsurance sectors does not imply that no ratings in the sector will be impacted. Fitch expects the ratings of some P&C insurers and reinsurers will be placed on “rating watch negative.” It adds that near-term downgrades are possible but currently viewed as unlikely.
Ratings currently on a positive rating outlook across all insurance sectors are being prioritized during the review process.
Fitch notes that the U.S. P&C sector benefits from a very strong capital position. The industry reported an underwriting profit for the last two consecutive years, and an estimated 10%+ growth in surplus in 2019 on stable earnings and higher unrealized investment gains. New challenges to performance arise in 2020 with the coronavirus pandemic and recent shifts in the investment market and economic conditions.
Additionally, the reinsurance sector has benefitted from a trend of recent price improvements, very strong capital adequacy going in 2020, robust risk management and generally solid business profiles. Fitch views the underwriting loss exposure (contingency/event cancellation, travel/accident, trade credit, surety and business interruption) from COVID-19 as manageable for reinsurers given the relatively small size of the exposed lines and the use of policy limits/sub-limits and exclusions.