In a comprehensive review of its international ratings in the global insurance sector with respect to the impact of the coronavirus pandemic, Fitch Ratings noted that the rate of negative outcomes across all insurance sectors and regions was 30%.
These outcomes are defined as the combination of negative outlooks, negative watches and downgrades as a percentage of all rating outcomes
The ratings agency believes this highlights the resiliency of the insurance sector going into the pandemic – marked by generally strong capital buffers, robust liquidity and, for a vast majority of companies, manageable investment risk exposures.
Fitch’s review comes after the agency announced in March that it was shifting its fundamental sector outlooks to negative across all insurance sectors in all regions.
Looking across sectors, the highest negative outcome rate was for the life insurance sector at 35%, with the lowest for the non-life sector at 21%. This is said generally to reflect higher relative investment leverage in the life sector which magnifies the impact of the asset portion of the pro forma stress analysis. Overall, the asset stress resulted in a vast majority of all negative outcomes.In terms of regions, the negative outcome rate was highest in Asia Pacific and EMEA, both at 34%, and lowest in North America at 22%. Negative outcomes in Asia Pacific were said to be influenced by generally higher levels of equity investments which is the asset class receiving the highest stress in Fitch’s pro forma analysis.
Meanwhile, in EMEA, negative outcomes were influenced by sovereign downgrades – most notably in Italy where most insurers hold sovereign debt at a very large percentage of their asset portfolios, making their ratings more strongly tethered to changes in the sovereign rating.