Fitch examines possibility of reinsurer ratings downgrades

Ratings company outlines the financial toll that recent events have taken on industry

Fitch examines possibility of reinsurer ratings downgrades

Insurance News

By Lyle Adriano

Due to the recent string of catastrophic events and the heavy losses they have caused, (re)insurers’ capital could weaken and the chance of ratings downgrades could increase, Fitch Ratings has said.

Earlier this month, the global credit ratings agency initially stated that Hurricane Harvey was unlikely to trigger ratings downgrades, calling Harvey “an earnings and not capital event for the industry.”

However, now Fitch believes that 2017’s catastrophe losses for the global insurance and reinsurance sectors will exceed US$100 billion and could even hit nearly US$190 billion on a pretax basis. Citing figures from AIR Worldwide, Fitch also noted that upper-end loss estimates for Hurricane Maria alone are US$85 billion, and that this can be added to US$50 billion from Hurricane Irma, US$25 billion from Hurricane Harvey, US$3 billion from Mexico earthquakes, and over US$20 billion in first-half catastrophic losses from various other events.

“Given the magnitude of the Maria-estimated losses, we now believe that 2017 catastrophe losses will constitute a capital event for a number of (re)insurance companies, as opposed to just an earnings event,” the ratings agency said.

Fitch explained that while the industry started the year with very strong capital levels – greatly limiting solvency risks – the combined loss concentrations of these catastrophes could still put some (re)insurers on the ropes.

“[We] believe there is heightened risk that combined loss concentrations to these events for several (re)insurers will result in a capital decline for full-year 2017,” it said. “In some cases, this could result in ratings downgrades if not addressed through capital raises or other mitigating actions.”

Citing its ratings coverage, Fitch said that global reinsurers are likely to be the most exposed to the major natural disaster events as of late, but it noted that some larger diversified primary insurers in America and several global entities will report material catastrophe losses.

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