Fitch has lowered its outlook on Suncorp to negative after reviewing the insurer’s ratings in light of financial uncertainty and increased risks to capital and earnings from the COVID-19 pandemic.

The negative outlook reflects potential earnings pressure from weaker insurance business performance, including lower premium growth, Fitch says.

The ratings agency has also pointed to the banking operation’s inability to pass on any rate rises due to weaker economic conditions, especially if the duration and severity of the pandemic lengthens.

Suncorp’s long-term A+ rating was affirmed.

“We think Suncorp’s potential exposure to coronavirus-related underwriting losses is manageable due to the modest share of business lines directly vulnerable to the pandemic as well as the presence of pandemic exclusions,” the ratings agency says.

Suncorp’s capitalisation could decline to “strong” from ‘very strong,” though it notes the impact of financial market disruption is “somewhat contained” because of Suncorp’s low non-life risky assets ratio of 7% at the end of last year.

Its business profile is ranked as “favourable” against all other Australian non-life insurers due to its “most favourable” competitive positioning and “favourable” business risk profile and diversification.

Fitch has assessed the economic impact of the coronavirus pandemic under assumptions related to Suncorp’s magnitude of exposure to COVID-19 related claims as well as interest-rate levels, market liquidity and the value of stocks, bonds and derivatives.

Suncorp’s non-life combined ratio remains within Fitch's aa criteria guidelines, averaging 92% over the three years to June 2019 – though it rose to 96% in the six months to December on large natural hazard losses.

Based on market share of net earned premium of 20% in Australia and 24% in New Zealand in 2019, Fitch scores Suncorp’s business profile at aa- under its credit-factor scoring guideline.