Moody’s revises reinsurance sector outlook to stable

Rating agency Moody’s Investors Service has revised its outlook for the global reinsurance industry from negative to stable, saying that price increases are set to drive stronger earnings for the sector going forwards.

Moody’s turned negative on the global reinsurance sector roughly a year ago, saying that despite rising prices 2020 was shaping up to be another disappointing year.

Despite the fact the industry is again facing higher than average catastrophe losses, plus continued uncertainty over the pandemic and also economic pressures including inflation, Moody’s now feels price increases are enough to set reinsurers on course for better returns and profits, it seems.

Moody’s summarised its outlook by saying that reinsurance price increases are set to drive stronger earnings through 2022 amid the post-pandemic economic recovery, while reinsurer capitalisation remains solid, with solvency ratios well above the required regulatory thresholds.

“Healthy price increases will drive stronger earnings through 2022 as the post-pandemic economic recovery and recent significant catastrophe losses fuel fresh demand for reinsurance,” explained Helena Kingsley-Tomkins, VP-Senior Analyst at Moody’s. “The sector’s capitalization remains solid, with solvency ratios resilient in a range of stress scenarios.”

Moody’s highlights a number of key factors driving better fortunes for the reinsurance industry.

Among these are the fact that property reinsurance prices are continuing to rise, driven by recent natural catastrophe losses, and a re-evaluation of secondary peril risks, including winter storms, flooding and wildfires.

This is set to continue, especially after the impacts of recent hurricane Ida which has seen its loss estimates escalate higher.

Casualty pricing also remains strong, Moody’s said, with most lines driven by higher demand, loss cost trends and low investment yields.

While Covid liability uncertainty has diminished, Moody’s said that pandemic-related claims continue to affect earnings for some of the large multiline reinsurers in 2021, largely on the mortality side.

Positively though, Moody’s feels that the pandemic has pushed reinsurers to be more prudent on systemic risk management, including where communicable disease, cyber events and climate change are concerned.

This is a significant factor in our view and one that may help to keep prices firmer for much longer this time around, as heightened awareness of and aversion to risk becomes more the norm and helps to ward off softening in some areas of the reinsurance market.

Moody’s also explained that alternative capital is returning to growth in 2021, as we’ve explained.

The rating agency believes that traditional reinsurance firms that have strong third-party capital management platforms will be well positioned to take advantage of new opportunities.

These platforms generate fee income while allowing the reinsurance company to underwrite risks and increase their market share at a lower capital cost, Moody’s noted.

Moody’s analysts also said that a poll of P&C insurers found that they are largely expecting low to mid single-digit reinsurance rate increases for 2022, suggesting the firming will continue.