Fitch runs Covid-19 ruler over industry

AIA has had its Fitch rating affirmed with a stable outlook, while Suncorp is affirmed with outlook revised to negative.

Monday, May 25th 2020, 4:40PM

Fitch has conducted a review of insurer ratings in Australia and New Zealand, with respect to the impact of the Covid-19 pandemic.

The review included nine insurers in the two countries.

The Insurer Financial Strength (IFS) ratings on six of the insurers were affirmed with stable outlooks. The IFS ratings on two others were affirmed, but the outlooks were revised to negative from stable. The rating on the last insurer was downgraded and remained on negative outlook.

The rating actions are based on Fitch's assessment of the impact of the coronavirus pandemic under a set of rating assumptions.

These assumptions were used to develop pro-forma financial metrics for the insurance groups, which Fitch compared with the rating guidelines defined in its insurance rating criteria, and with previously established rating sensitivities for the respective insurers.

Fitch expects the insurers' financial performance and earnings to deteriorate as a result of the economic fallout from the pandemic, especially via higher claims and lower investment yields.

Fitch took negative rating actions on insurers that were more exposed to the deteriorating economic conditions, including a lenders' mortgage insurer as well as an insurance group with banking exposure, which would be affected by higher unemployment and a worsening housing market.

"The impact on insurers' capital positions due the financial market disruption under our rating assumptions is somewhat contained because most of the Fitch-rated insurers in Australia and New Zealand have relatively low risky assets ratios.

"The ultimate implications of the pandemic on the insurers' credit profiles are unclear, and Fitch will continue to monitor the developments of the rated insurers. The pressure on the companies' credit profiles could increase if economic and financial market disruptions are prolonged and materially affect their capital and earnings."

AIA was affirmed at AA with a stable outlook, Suncorp, which includes Asteron Life, was affirmed at A+ with a negative outlook.

Tags: Fitch insurance