May 18, 2020 / 1:31 PM / 11 days ago

Global insurance market is well capitalized in the face of COVID-19: report

(Reuters) - Global insurers are well capitalized to absorb the hit from rising claims and costs related to the COVID-19 pandemic, ratings agency AM Best said on Monday, citing a stress test it conducted to gauge the immediate impact of outbreak on insurers’ financial strength.

FILE PHOTO: A woman wearing a protective face mask walks past Lloyd's building in London, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 6, 2020. REUTERS/Henry Nicholls/File Photo

AM Best said most rated insurers and reinsurers performed well in its stress test and their capital levels provided an adequate buffer against a potential shock to their balance sheets.

Sensitivity to the COVID-19 pandemic was greater for life and health insurers with high asset and mortality risks, insurers with material exposures to mortgage loans, carriers operating in domiciles in higher country-risk tiers and companies with smaller capital bases.

Property and casualty insurers in the United States and Canada performed relatively well in the stress test, compared with life, annuity and health insurers.

Most companies in the Asia-Pacific market generally performed well, as did those in Europe, the Middle East, Africa and Latin America, the test showed.

“Insurers are likely to see a significant hit to earnings in 2020, rather than a material decline in risk-adjusted capitalization,” said Mahesh Mistry, senior director, AM Best Rating Services.

“Reputational risk in certain markets may also be a problem, as any legal disputes become more visible to consumers, policyholders, regulators and legislators,” he added.

Unlike other disasters, the pandemic has been hitting businesses, individuals and markets throughout the world, all at once. Customers are filing claims across numerous policy types, for workers’ compensation to events cancellation to broader commercial liabilities.

The disputes over claims continue just as the United States is about to enter what meteorologists predict will be above-average Atlantic Ocean hurricane season, which could spur similar claims for insurers.

Executives, lawyers and analysts say the cost is sure to be in multiples of prior catastrophes including Hurricane Katrina, the Tōhoku tsunami or the 9/11 attacks. That could be tens of billions to half a trillion dollars or more, depending on how long the pandemic lasts and other variables. [nL1N2CM238]

The stress test analysis covered about 1,400 rating units worldwide, and focused on the impact of COVID-19 on underwriting and assets. The procedure for the test included gathering information from companies through a questionnaire.

Questions ranged from the impact of the disease outbreak on operations and financial position, previous pandemic risk stress test scenarios a company may have previously modeled and any adjustments to 2020 financial expectations.

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Vinay Dwivedi

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