While analysts at Standard & Poor’s Global Ratings agree with the popular assessment that COVID-19 is an earnings—not a capital—event, COVID plus catastrophes could be a different story.

In a report published last week titled “Global Reinsurers Face Threat If COVID-19 Losses Are Followed By A Major Catastrophe,” S&P gives support for the title by noting that if insured catastrophe losses for the year come in at even just an average level, then at least eight of the top 20 reinsurers could suffer a capital event.

In S&P’s view, “an average level” of insured catastrophe losses is $60-$70 billion.

“2020 could turn into a capital event for the sector if it matches 2019, which was fairly average and saw global insured losses of $59 billion,” the report said.

“S&P Global Rating anticipates that certain reinsurers—those that have shown a higher appetite for natural catastrophe risk and are also more exposed to the effects of the pandemic—could now find even an average year testing,” the report said.

Summarizing some of its findings in a chart that indicates how many reinsurers would see their capital buffers eroded by industry losses at various levels, S&P estimates that without COVID, above-average levels of insured catastrophe losses of $100 billion would be capital events for just a handful of the top 20. But with COVID added to the mix, 15 of the top 20 would see their capital buffers eroded.

Using data from the top 20 reinsurers and its own estimate of pandemic impacts, S&P estimates $1 billion in pretax profits for the sector in 2020, assuming that the top 20 group’s aggregated natural catastrophe losses match a budgeted level of about $12.5 billion—or roughly 20 percent of a $63 billion level of expected annual losses from natural catastrophes for the industry based on market shares.

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Absent COVID-19 losses and potential lower investment returns, S&P said that the top 20 global reinsurers would have reported combined pretax profits of about $19 billion by the rating agency’s estimates, again assuming the $12.5 billion budgeted catastrophe level.

In other words, with COVID pushing the top 20 profit figure down to $1 billion profit, S&P estimates a $14 billion buffer to absorb stresses before depleting the capital base of the top 20—the sum of the $1 billion profit and the $12.5 billion catastrophe budget. This compares to a $32 billion combined catastrophe budget and earnings buffer that would have been available without COVID’s downward impact on earnings.

The report also notes that Swiss Re Institute has estimated global insured natural catastrophe losses of $28 billion already for the first half of 2020—which is almost half of the $63 billion industry total corresponding to S&P’s $12.5 billion estimate for the 2020 of the top 20.