Rating agency Fitch has said the impact of the COVID-19 pandemic on the world biggest reinsurers was in line with its expectation, however, the level of losses was higher than anticipated.

The company has issued new analysis following the publication of the results for the first six months of the year from Munich Re, Swiss, Re, Hannover Re, and Scor.

All revealed considerable pandemic-related claims, although Fitch said capital remained resilient. Due to the differences in exposure to lines of business affected by the pandemic, the impact of the pandemic on the four reinsurers varied significantly.

“The 1H20 results from the four major European reinsurers have revealed substantial additional claims related to the coronavirus pandemic, while capital remained resilient,” it explained. “The impact the pandemic had on earnings differed between companies due to their varying exposures. The reinsurers also applied different methodologies on how to account for claims that, in most cases, have not yet been reported.

“This makes the comparison of results difficult at this time. Credit fundamentals remained largely in line with Fitch Ratings’ original assessment at the beginning of the pandemic.

“Fitch believes that the pandemic remains an earnings event despite the high degree of uncertainty on ultimate losses. The underlying financial performance and the capitalisation of the four major reinsurers remain strong.”

On the level of losses from the pandemic Fitch expects the impact to continue but the claims will come from different areas of the reinsurers’ underwriting portfolios.

“While all four major European reinsurers reported a substantial decline in earnings due to pandemic-related losses, the absolute effect varied from one company to another,” stated the report. “The different amounts of pandemic-related claims highlight different business portfolio structures and also different methodologies on estimating and booking incurred but not reported reserves.

“Fitch expects that additional claims will be booked in the quarters to come, with the focus moving away from event cancellation claims to credit and surety losses.”

It added that it was possible that some reinsurers could reallocate unused natural catastrophe budgets to absorb parts of the pandemic claims booked in the first six months of the year.
All four reinsurers reported an accelerating price momentum for the June and July 2020 renewals said Fitch. The industry has undertaken a more disciplined approach so as to protect earnings from pandemic-related claims and lower investment income.

“Global capital markets are still accessible for reinsurers needing capital raises to strengthen their balance sheets or fund new growth,” it added. “Fitch estimates that more than $15 billion have been raised and that, as long as favourable market conditions persist, we expect this figure to increase.”