COVID-19 Will Test Insurers’ Resilience

By: S&P Global

  • The capital strength typical of the insurance sector will help stave off widespread downgrades across the global industry as it faces the COVID-19 pandemic.
  • That said, the situation will exacerbate existing weaknesses and we anticipate some targeted downgrades or outlook changes over the coming weeks as we actively review and stress our insurance ratings.
  • Life insurers are more at risk, particularly those with relatively thin capital buffers and significant exposure to financial market volatility through their asset portfolios or product offerings.
  • We are retaining our stable outlooks on the life insurance sectors in North America and EMEA, but revising the outlook for the APAC life insurance sector to negative.
  • Regulatory solvency ratio volatility could increase deferral risk for hybrids. Issuers’ capital management and mitigation actions, as well as possible supervisory interventions, will continue to be key to our rating analysis of hybrids.

As COVID-19 continues its rapid global spread, the economic impact has worsened sharply. Nevertheless, S&P Global Ratings expects that the insurance industry’s robust capital position and limited exposure to loss-affected lines of business will enable most insurers to absorb the impact of financial market volatility and manage the marginal increase in claims (see “COVID-19 Will Test Insurers’ Resilience,” published today).

The rate of infection is accelerating globally and the center of the pandemic has shifted from China to Europe and the U.S. The World Health Organization designated the outbreak a pandemic on March 11, 2020. We forecast that the global economy will be in recession in 2020 as a result (see “Global Macroeconomic Update, March 24: A Massive Hit To World Economic Growth,” published on March 24, 2020).

The economic disruption associated with the pandemic, combined with the collapse in oil prices and resultant extreme volatility in the capital markets, will have severe implications for global credit markets. That said, average rating across the industry is ‘A’, the highest average rating for any corporate or financial services industry we rate. As with other investment-grade issuers, we don’t anticipate widespread downgrades across the industry.

Nevertheless, some ratings will be affected. To date, we have downgraded one insurer and placed two insurance ratings on a negative outlook or CreditWatch. In each case, the implications of COVID-19 had compounded other factors, causing creditworthiness to deteriorate.

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COVID19 Will Test Insurers Resilience

This report does not constitute a rating action.