Moody's said its outlook on the global reinsurance sector is negative for 2021, reflecting the uncertainty around coronavirus-related losses, as well as the expected impact of low interest rates, shrinking reserve release and expensive retrocessional coverage on reinsurers' profitability.

The rating agency said that reinsurers face a heightened earnings risk due to rising loss cost trends from social inflation and thin reserve margins across the general liability, professional liability and commercial auto lines.

Weak profitability in the sector raises questions about the sustainability of some business models as pricing remains well below adequate levels to compensate for the volatility reinsurers assume, according to Moody's. Volatility also increases further as the frequency and severity of weather-related natural catastrophes continue to rise amid rising temperatures and sea levels.

Moody's sector outlook also reflects coverage issues related to business interruption claims due to coronavirus-related economic shutdowns, significant uncertainty related to mortality claims for life reinsurers, as well as heightened vulnerability in certain lines of business, including directors and officers liability, errors and omissions, employment practices liability, medical professional liability and workers' compensation.

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