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, current sector-wide risks and emerging risks.
As of March 31, 2022, 29% of S&P’s ratings on the top 21 global reinsurers had a negative outlook, 57% were stable, and 14% were positive or with a positive impact on CreditWatch.
The rating agency estimates that the top 21 global reinsurers will account for about half of the potential losses in the insurance sector overall, which will vary by line of business as some lines are more reinsured than others. It also expects the losses of the Russia-Ukraine conflict to be an earnings event for most reinsurers. However, given the significant natural disaster losses already accumulating during the first quarter of 2022, even before the Atlantic and Pacific hurricane seasons arrive, the loss could turn into a capital event for some outsiders.
Over the past five years, increases in natural disasters and pandemic damages, unfavorable trends in some 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 tightened in previous years through a January 2022 renewal, according to S&P.
However, the rating agency clarified that the extent of price hike varies depending on the business, loss experience and sectors. And, because of these price increases, the combined ratio of accident year, excluding natural disaster losses and reserve development, among the top 21 global reinsurers has improved by nearly 4 percentage points since 2017.
For the rest of 2022, S&P expects positive momentum to continue in reinsurance pricing, with tighter terms and conditions buoyed by the magnitude of the damage from the Russia-Ukraine conflict.
“We may revise our sector outlook from negative to stable if we are confident that reinsurers can earn their COCs sustainably. This is due to the reform of reinsurance pricing through 2022 and the Russia-Ukraine related Management of volatility from natural disasters and man-made damages including claims will depend significantly on the discipline and preparedness of the sector,” S&P said.
In addition to specialized lines, cyber insurance is another type of insurance product most likely to be affected by the Russia-Ukraine conflict.