Insurer Ratings Review Shows Industry's Resilience Entering Pandemic

Fitch Ratings says a review of the COVID-19 pandemic's impact on global insurance sector ratings found that the rate of negative outcomes highlights the industry's resilience going into the pandemic.

The rating agency defined "negative outcomes" as the combination of negative outlooks, negative watches, and downgrades. The percentage of such outcomes across all insurance sectors and regions was 30 percent, Fitch said.

According to Fitch, the insurance industry's resilience as the pandemic began was marked by generally strong capital buffers, robust liquidity, and, for a vast majority of companies, manageable investment exposures. Fitch noted, however, that its review also highlighted varied vulnerabilities at the group or company level.

Fitch's review followed its announcements in March that it was shifting its fundamental sector outlooks to negative across all insurance sectors in all regions. The rating agency subsequently defined its assumptions for reviewing the COVID-19 pandemic's impact on insurance companies. Those assumptions captured vulnerability related to equity market volatility, interest rates, bond defaults and rating migration, COVID-19 infection and mortality rates, market liquidity, and non-life claim costs, Fitch said.

Fitch's review found the following.

• 67 percent of groups were affirmed with a stable outlook
• 21 percent of groups were affirmed with a negative outlook
• 8 percent of groups were downgraded, typically by 1 notch
• 1 percent of groups were placed on rating watch—negative
• 3 percent of groups had another action, such as maintenance of a positive or evolving rating watch tied to pending merger/acquisition activity

The highest negative outcome rate was for the life insurance sector at 35 percent, while the lowest was for the non-life sector at 21 percent, Fitch said. The difference in outcomes generally reflects higher relative investment leverage in the life sector, according to Fitch.

By region, the highest negative outcome rate was in the Asia Pacific and EMEA (Europe, Middle East, Africa) regions, each at 34 percent, with the lowest in North America at 22 percent, Fitch said.