Analysts at Moody’s have decided to change their outlook on the reinsurance sector from negative to stable as prices continue to increase amid a global economic rebound.
The rating agency expects rate increases to drive stronger earnings for reinsurers through 2022, and notes that capitalization has remained solid with solvency ratios well above 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,” said 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,” she added.
Property reinsurance prices continue to climb, driven by recent natural catastrophe losses, and a re-evaluation of secondary peril risks, including winter storms, flooding and wildfires.
At the same time, casualty pricing also remains strong across most lines because of higher demand, loss cost trends and low investment yields, Moody’s observes.
Analysts further asserted that uncertainty over COVID liabilities has diminished over the course of 2021, although pandemic-related claims continue to affect earnings for some large multiline reinsurers, driven by higher than expected mortality claims.
Additionally, the pandemic has caused reinsurers to take a more prudent stance towards systemic risk management, including communicable disease, cyber events and climate change.
Turning to alternative capital, Moody’s acknowledged that the sector has returned to growth this year, and suggested that traditional reinsurers with strong third-party capital management platforms will be well positioned to take advantage of new opportunities.
“For reinsurers, such platforms generate fee income while allowing them to underwrite risks and increase their market share at a lower capital cost,” the firm concluded.
Last week, AM Best also opted to maintain a stable outlook on the global reinsurance sector, asserting that reinsurers have proven capable of absorbing the impact of the pandemic with balance sheets remaining resilient.