Credit assessor Fitch Ratings says the global reinsurance sector will not earn its cost of capital in 2020.
The measure is used to assess the return a reinsurer needs to accumulate in order to pay both its debt interest and provide returns to shareholders.
According to Fitch, the financial performance of reinsurers will be hit by mortality claims and losses from event cancellation, business interruption, credit and surety insurance, as well as by financial market disruption linked to the economic impact of lockdown measures.
After conducting a sector ratings review and coming to the conclusions above, Fitch downgraded the financial strength rating of industry giant Swiss Re from AA- to A+, and Mexican reinsurer Reaseguradora Patria from A- to BBB+, with the new ratings assessed as stable for both.
In its report, Fitch’s analysts said: “The main driver for the negative rating actions was deteriorating financial performance.
“Based on our pro-forma analysis, we continue to view the global reinsurance sector’s capitalisation as strong on average, with pro-forma capital ratios not much weaker than those at end-2019.
“We expect capitalisation to hold up in most cases and not be a major driver of rating actions.”