Fitch Ratings has reported that its rating activity for Western European re/insurers normalized during the second half of 2020 following a substantial increase in negative rating actions over H1.
Coronavirus pandemic-related actions drove a 45% rise in the number of western European insurance rating actions taken in 2020, compared to 2019.
Of the 155 Insurer Financial Strength (IFS) rating actions in 2020, around 25% were negative – up from 3% in 2019 and 9% in 2018.
Overall, Fitch made 12 ratings downgrades for the full year, which is substantially higher than the benign experiences in 2019 (two) and 2018 (one).
But Fitch believes that the number of downgrades was quite modest given the magnitude of the pandemic’s broader impact, due to the ratings headroom that many European insurers enjoyed.
And there have been limited rating actions in the region since June, which signals that the near-term rating risks identified at the start of the pandemic have abated for many insurers.
Fitch notes that this was evident in H1 results, which were not subject to meaningful capital pressures.
The significant central bank and government interventions also aided the financial markets.
However, Fitch still maintains worsening sector outlooks for many European life re/insurance markets, reflecting persistent medium-term risks.
This is driven by even lower interest rates in 2020, the expectation that these low levels are likely to persist in 2021, and the significant credit risk exposure of life re/insurers.
