Global insurance ratings stabilise, but pressures remain

Written by Adam Cadle

27/08/2021

Fitch Ratings has completed a review of approximately 70 insurance groups that has resulted in favourable actions for about 80% of the cohort, mainly outlook revisions to stable from negative.

The insurance groups were reviewed over the first eight months of this year, and represent just over 25% of Fitch’s international scale insurance ratings coverage globally. However, some pressures still remain.

These actions reflect a stabilisation of global insurance ratings following negative signalling applied in 2020 tied to the economic impact of the coronavirus pandemic. Typically, for the noted insurance groups, rating outlooks in 2020 were revised to negative from stable.

The more favourable signalling actions reflect Fitch’s expectation that investment and underwriting losses are absorbable by earnings and capital, allowing key financial metrics to remain within guidelines.

In 18% of the cases, the rating action was neutral, meaning either the prior signalling was maintained or a rating action was taken unrelated to the impact of the pandemic. Negative actions, including downgrades or an adverse change in signalling, were taken in less than 3% of cases, and typically focused on companies with less headroom in their ratings leading into the pandemic.

While the insurance industry has proven to be resilient to the pandemic, some pressures remain. These include some developing markets where insurers have material exposure within their investment portfolios to a sovereign that is still under ratings pressure due to the pandemic.

Pressures also remain in commercial real estate (CRE), especially the retail and offices sectors, which will strain some insurers’ investment portfolios. To date, however, Fitch has not observed CRE investment concentrations within its ratings coverage that it expects to result in near-term rating issues.

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