S&P Global Ratings has revised its outlook from negative to stable compared to the global reinsurance giant Swiss Re and its main subsidiaries, citing the uncertainty surrounding its underwriting performance.
In addition to the review of Swiss Re’s outlook, S&P confirmed its issuer credit ratings “AA-” and the financial strength of insurers on the main subsidiaries of the Swiss Re group.
Swiss Re recently announced that the impact of the COVID-19 pandemic had negatively affected its first quarter 2020 results, with the company reporting a net loss of $ 225 million for the period, which included a loss of underwriting and a loss of investment.
“The negative outlook points to the possibility that we may be able to downgrade the ratings by one notch if the underwriting performance of Swiss Re’s P / C businesses does not generally meet our expectations,” says S&P.
The rating agency says the company’s underwriting performance has deteriorated in recent times due to the difficult pricing environment for its P / C operations as well as the underperformance of its core business. According to S&P, the P / C problems stem in part from the large claims of native cats, the impacts of COVID-19 and losses to market value due to tensions in the financial markets.
“Although a large part of this underperformance is attributed to losses related to COVID-19, these do not lead to the revision of the outlook because we expect that other reinsurers will suffer similar losses throughout the year, “says S&P.
Based on the published results, S&P indicates that the underwriting performance of Swiss Re’s P / C activity makes the group a negative outlier compared to its close counterparts, partly due to higher exposure to native cats than peers who benefited from a favorable development in reserves from the previous year. . In addition, the Corporate Solutions branch of Swiss Re continues to face difficulties despite efforts to improve underwriting results, which has dampened the group’s weaker performance, explains S&P.
“Although we take into account the strong brand of Swiss Re Group and its large-scale activity profile diversified by geographic area and by business sector, we believe that there is uncertainty as to the underwriting performance of P&C reinsurance business, particularly in the United States, and the recovery in CorSo business. Our negative outlook reflects this uncertainty, which may influence our view of the competitive position of the group that we currently consider to be excellent, “said the rating agency.
Due to pressures on Swiss Re, which include potential new COVID-19 claims and a weaker ROI environment, S&P has lowered its earnings expectations for the group. For 2020, S&P expects the Swiss Re P / C unit to likely have a high combined ratio of 107% and a group-wide return on equity of 5%.
“We expect the group to improve its profits compared to 2021 and 2022 through price increases across all of its P / C activities, as well as the benefits of the corrective actions taken in relation to CorSo. Over this period, we expect a combined annual ratio of 99% for the group, with a ROE of 7%, mainly driven by life business and investment returns, ”explains S&P.
The effects of the COVID-19 pandemic are far-reaching and it is becoming increasingly clear that no business is immune to economic fallout.