More than a third of EMEA insurers face negative ratings action due to Covid-19

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Fitch Ratings said some 12% of actions resulted in downgrades

Fitch Ratings has taken negative actions against more than a third (34%) of EMEA-based insurers in light of the coronavirus pandemic.

The ratings agency reviewed its portfolio as a result of the crisis, resulting in ratings actions being taken against 84 insurance groups , with downgrades accounting for 12% of actions, Outlook revisions to Negative accounting for 20% and Rating Watch Negative accounting for 2%.

The bulk of rating actions, however, were affirmations with a Stable Outlook maintained (55%), and Fitch said that the “limited number of downgrades shows that most EMEA insurers went into the crisis with some headroom in their ratings”.

In total, ten EMEA insurance groups were downgraded, mostly by one notch, including eight Italian insurers following the downgrade of Italy’s sovereign rating on 28 April 2020.

Meanwhile, Fitch said that its Outlook changes to Negative dominated the negative rating actions, and that the one- to two-year time horizon associated with such outlooks reflect its “expectation that many of the adverse credit effects of the pandemic will take time to appear”.

The ratings agency said that the credit quality of some insurers “could be affected by a rise in claims arising from the pandemic, driven, for example, by court rulings on the validity of business interruption claims”.

But Fitch added that the “decline in motor insurance claims due to less road traffic during lockdowns and a slowdown in health insurance claims due to a temporary reduction in elective surgery and treatment could help to offset the effect for some insurers”.