AM Best: Class of 2020?

While the coronavirus (COVID-19) pandemic has brought the world to an economic slowdown, potentially reducing the value of insurable risk, market dislocation is creating attractive opportunities for insurers in some lines of business, according to AM Best’s latest report.

In response, the ratings agency believes that there is an inflow of capital into the sector, which may lead to the emergence of a Class of 2020. A number of existing companies, including Beazley, Fidelis, Hiscox, Lancashire, QBE and Renaissance Re have announced capital raising initiatives to bolster balance sheets in response to uncertainty as to the scale of the impact of COVID-19-related losses on earnings and to take advantage of an expected hardening market.

Initial stress testing conducted by AM Best to gauge the preliminary impact from the COVID-19 pandemic on rated insurers’ financial strength found that capital levels provide an adequate buffer against a potential shock to their balance sheets. Overall, insurers are likely to see a significant hit to earnings in 2020, rather than a material decline in risk-adjusted capitalisation. However, the unprecedented impact of COVID-19 on the industry, and its effect on global economic activity, means that companies could still face credit rating pressure if market conditions deteriorate beyond prescribed scenarios.