In May 2020, S&P Global Ratings revised its outlook on the global reinsurance sector to negative from stable because the sector has struggled to earn its cost of capital over the past few years. It has faced fierce competition, elevated natural catastrophe and COVID-19-related losses, adverse loss trends in certain U.S. casualty lines, and low investment returns.
In our lead article The Global Reinsurance Sector Outlook Remains Negative As Returns Fall Short, we discuss why we still consider the sector outlook to be negative and highlight reinsurers' main challenges and opportunities with regard to competitive market dynamics, pricing adequacy, capitalization, the higher frequency and severity of natural catastrophes (exacerbated by rapid urbanization and climate change), and expected earnings.
In Global Reinsurers Are Grappling With How To Incorporate Climate Change Risk we perform a stress test assuming that large tail events would occur more frequently and discuss how reinsurers are incorporating climate change risk in their business steering, and how we incorporate that risk in our credit analysis.
