COVID-19-related losses in first quarter of 2020 has resulted in the global reinsurance sector being placed under negative outlook by S&P.

In a foreword to the report, the agency highlighted pandemic-related losses coupled with volatile capital markets and lower investments as preventing the sector from meeting the earnings expectations for the first quarter of 2020.

Thus, the sector has been placed under negative outlook from stable due to “difficult business conditions.”

The aggregate combined ratio expectation for the top twenty global reinsurers has been revised to 101%-105% and the agency expects this to rise if COVID-19 related losses accelerate beyond $30 billion for the wider (re)insurance sector. COVID-19 losses in the first quarter of 2020 added 10 points on average to the combined ratio.

This comes as Lloyd’s of London said that it expected coronavirus-related claims to cost between $3bn to $4.3bn ($2.5bn to $3.5bn). Lloyd’s chief executive, John Neal speaking to the BBC said “it could be two years before everyone really gets their arms around the true cost of this pandemic.”

Furthermore, the article mentioned that the cost paid by Lloyd’s members for business interruption claims due to COVID-19 were between $1bn to $1.4bn.

The rating agency expected a hardening in pricing in Property and Casualty, which has borne the brunt of the COVID-19 losses.

Likewise, the report said that the sector will not earn the cost of capital, which is the third year in a row it has done so. In previous years this has been due to factors such as fierce competition and the natural catastrophe losses in 2017. This will be the worst sequence of results for over 15 years.

As well as actively monitoring reinsurers’ COVID-19 losses, which will wipe out their earnings for the year, the report also stressed that S&P will monitor reinsurers who entered the year with struggling operating performances.