AM Best has warned that the ratings of re/insurers in Europe, the Middle East and Africa (EMEA) have been more sensitive to market events in 2022 than in previous years.
In particular, heightened geopolitical tensions, the rise in global inflation, and recessionary pressures have contributed to a difficult insurance and capital market environment
And increased claims from catastrophe losses have further contributed to the challenging operating environment, the rating agency adds.
AM Best notes that the vast majority of rating units in the EMEA area have stable outlooks currently, with 84% of mature markets rated as stable, and 75% of emerging markets, of which 5% have positive outlooks on their credit ratings.
This is down from 7% in 2021, but the reduction in positive outlooks is attributable to the upgrade of a number of re/insurers and subsequent revision of their outlooks to stable, AM Best says, as well as the exclusion of some Russia-domiciled firms.
However, a much larger 15% of rating units now have negative outlooks, with 12 outlooks having been revised down from stable in 2022 due to elevated country risk pressures or pressure arising from weakened balance sheets.
In addition to the greater number of negative outlooks in 2022, there were 14, of which nine were emerging market companies, and for the most part were driven by a weakening balance sheet strength or ERM building block assessment.
“The global economy faced significant headwinds in 2022, which exacerbated existing issues in certain vulnerable emerging markets,” AM Best explained.
“This was most notably observed in Lebanon, Tunisia, Turkey, and Ghana, which endured particularly adverse economic crises over the course of the year. Six of the 14 downgraded rating units were in part negatively impacted by exposure to at least one of those countries.”
There were also seven upgrades last year, five of which were tied to mature market companies, with AM Best noting that prudent risk management practices underpinned the resilience of balance sheet strength and operating performance during the challenging equity market and economic conditions seen during 2022.
“This analysis highlights some common themes as weaknesses, the most important of which is risk governance, with some (re)insurers, more so in emerging markets, adopting basic or minimum requirements to run their businesses,” AM Best concluded.
“The adoption of prudent risk management practices is critical, to ensure that companies manage risks effectively and in a controlled manner, especially in times of heightened economic uncertainty and market volatility.”
