Global insurers to suffer direct, indirect impacts from coronavirus

New report from Moody’s outlines how COVID-19 threatens profitability of insurers and reinsurers

Global insurers to suffer direct, indirect impacts from coronavirus

The global coronavirus outbreak represents both a direct and indirect threat to the profitability of global insurers and reinsurers, according to a new report from Moody’s Investors Service.

According to the report, insurers will be squeezed between decreased business volumes and increased claims for certain forms of insurance should a coronavirus-driven economic slowdown occur.

They also stand to face indirect pain from the virus, as recent losses in stock markets around the world threaten to make themselves felt through weaker returns on insurers’ investment portfolios, according to Brandan Holmes, Vice President and Senior Credit Officer at Moody's.

“A sharp deterioration in financial markets over the past week will weigh on insurers' profitability and capitalisation,” Holmes said.

The new report strikes a similar but more pessimistic tone compared to one issued by Moody’s nearly a month ago, which focused on Chinese insurers.

In the commentary released February 4, the firm noted that China’s insurance industry was seeing limited direct financial impact from the coronavirus, as Hubei — the Chinese province that was ground zero for the outbreak — accounted for 4% of domestic life and non-life insurance premiums underwritten in 2019.

“The industry's premium mix also remains dominated by savings-type products, with health insurance accounting for 22.8% of total life premiums at the end of 2019,” Frank Yuen, a Moody’s vice president and senior analyst, said in the earlier report.

Aside from an expected uptick in low-severity medical claims — large medical claims in China were expected to be contained as public medical funds provide substantial coverage — the report noted that some rated insurers have also taken out reinsurance against pandemic risk, which should in most cases be enough to cover considerable portions of their in-force book.

“The more immediate and significant impact from the coronavirus outbreak on Chinese insurers will stem from the resultant disruption on their broader business, and from the negative impact on investment portfolios due to lingering concerns over a potential further slowdown in the economy,” Yuen said.

The first report was issued on February 4, and the newer report came out on March 2. Over that time, the number of reported COVID-19 infections worldwide surged from 24,545 to 90,449, and reported deaths swelled from 492 to 3,117.