Based on its analysis, S&P reported a negative outlook for the global reinsurance sector, reflecting its expectations of the credit trend over the next 12 months, including the current distribution of rating outlook, existing cross-sectoral risks and emerging risks.
On March 31, 2022, 29% of S & P’s ratings on the 21 best global reinsurance companies had a negative outlook, 57% were stable and 14% were positive or on CreditWatch with positive implications.
The credit rating agency predicts that the 21 leading global reinsurers will take on about half of the potential losses in the insurance sector as a whole, which varies by industry as some lines are more reinsured than others. It also expects that the losses in the conflict between Russia and Ukraine will be a profit event for most reinsurance companies. However, the losses could turn into a capital event for some extreme values, given the significant natural disaster losses already accumulating during the first quarter of 2022, even before the hurricane seasons in the Atlantic and Pacific Ocean arrive.
Over the past five years, heightened natural disasters and pandemic losses, unfavorable trends in some US accident lines (general liability, professional lines and car liability) and a competitive environment have driven weak insurance results in the sector. As a result, reinsurance pricing has tightened in recent years until the renewals in January 2022, according to S&P.
However, the credit rating agency explained that the extent of the price increases has varied depending on industries, loss experience and regions. And due to these price increases, the total quota for the accident year, excluding natural disaster losses and reserve development, of the 21 best global reinsurers has improved by about 4 percentage points since 2017.
For the rest of 2022, S&P expects the positive momentum in reinsurance pricing to continue, with tightening conditions further affected by the scale of the conflict between Russia and Ukraine.
“We could revise our sector outlook to stable from negative if we believed that reinsurers could sustainably earn their COCs. This will be significantly due to improvements in reinsurance pricing by 2022 and the sector’s discipline and readiness to deal with volatility from natural disasters and human-caused losses, including Russia-Ukraine-related claims, says S&P.
Apart from special areas, cyber insurance is another type of insurance product that is likely to be affected by the conflict between Russia and Ukraine.