Most P/C insurers will be able to weather any financial market volatility and higher claims relating to COVID-19, S&P Global Ratings predicts in a new report, though it warns some carriers with weak spots will face closer scrutiny.
“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,” Standard & Poor’s said. “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.”
In the P/C insurance industry’s favor, S&P noted that carriers have limited exposure to loss-affected lines of business. Life insurers are more at risk, particularly any that lack a large capital buffer and have huge exposure to financial market volatility either through their asset portfolios or product, S&P said. With that in mind, S&P said it is keeping stable outlooks for life insurers in North America, Europe, the Middle East and Africa, but revising the outlook for life insurers in Asia-Pacific to negative.
S&P warns that the global economy will be in recession in 2020 due to the acceleration of infection rates globally and the shift of the center of the pandemic from China to Europe and the U.S. Also not helping: the fact that the World Health Organization designated the outbreak a pandemic earlier in March.
S&P noted that the average rating across the insurance industry remains “A,” the highest average rating it gives for any corporate or financial services industry it rates, and it doesn’t anticipate widespread industry downgrades. But there will be pressures all around the industry, from the economic disruption, collapse in oil prices and resulting extreme volatility in the capital/global credit markets.
To date, S&P said it has downgraded one insurer and placed two insurance ratings on a negative outlook or CreditWatch. In each case, COVID-19 had compounded other factors, causing creditworthiness to deteriorate, according to the report update.
Source: Standard & Poor’s