Based on its analysis, S&P reported a negative outlook on the global reinsurance sector, reflecting its credit trend expectations over the next 12 months, including the current distribution of rating outlooks, existing sector-wide risks, and emerging risks.
As of March 31, 2022, 29% of S&P’s ratings on the top 21 global reinsurers had negative outlooks, 57% were stable, and 14% were positive or on CreditWatch with positive implications.
The rating agency predicts the top 21 global reinsurers to assume around half of the potential losses in the insurance sector on aggregate, varying by lines of business because certain lines are more reinsured than others. It also expects the Russia-Ukraine conflict losses to be an earnings event for most reinsurers. However, the losses could turn into a capital event for a few outliers, given the significant natural catastrophe losses already accumulating during the first quarter of 2022, even before the Atlantic and Pacific hurricane seasons arrive.
Over the past five years, elevated natural catastrophes and pandemic losses, adverse trends in certain US casualty lines (general liability, professional lines, and auto liability), and a competitive environment have driven weak underwriting results in the sector. As a result, reinsurance pricing has hardened over the past years through to the January 2022 renewals, according to S&P.
However, the rating agency explained that the extent of the price increases has varied by lines of business, loss experience, and regions. And, because of these price rises, the accident year combined ratio, excluding natural catastrophe losses and reserve developments, of the top 21 global reinsurers has improved by around 4 percentage points since 2017.
For the rest of 2022, S&P expects the positive momentum in reinsurance pricing to continue, with tightening terms and conditions further influenced by the magnitude of the Russia-Ukraine conflict losses.
“We could revise our sector outlook to stable from negative if we believed reinsurers could sustainably earn their COC. This will depend significantly on reinsurance pricing improvement through 2022 and the sector’s discipline and preparedness in managing volatility from natural catastrophes and man-made losses, including the Russia-Ukraine related claims,” S&P said.
Aside from specialty lines, cyber insurance is another type of insurance product most likely to take a hit from the Russia-Ukraine conflict.