New Delhi, March 3: Global insurers and reinsurers are exposed to the coronavirus outbreak directly through a potential spike in claims and indirectly through the impact on economic growth and the resultant financial market volatility, said Moody's Investors Service in a report on Tuesday.
The report said the coronavirus outbreak is driving financial market volatility because it is likely to trigger an economic slowdown. The possibility of a global recession becomes increasingly likely, the longer the virus remains uncontained. Significant deterioration in equity markets and widening credit spreads, along with even lower interest rates, will weigh on insurers' profitability and capitalisation. The expected economic slowdown will also have a negative impact on insurers' business volumes.
“European insurers' Solvency II ratios are particularly sensitive to financial market volatility and movements in bond yields and credit spreads,” said Brandan Holmes, a Vice President, Senior Credit Officer at Moody’s.
“Sharp deterioration in financial markets over the past week will weigh on insurers' profitability and capitalisation,” he added.
An economic slowdown triggered by the outbreak will crimp business volumes for insurers and also lead to higher claims for certain types of insurance, including trade credit and event cancellation insurance.
“We also expect weaker investment returns on insurers' investment portfolios, including loses on equity exposures,” the report added.
For global insurers, mortality levels would need to rise significantly to trigger a substantial rise in claims for life insurers, although there is still a lot of uncertainty as to the ultimate level of deaths. More broadly Moody's believes that non-life insurers' exposure is limited and consequently doesn't expect a significant claims impact.
The report stated while global reinsurers’ exposure to Chinese life and health insurance, and critical illness cover in particular, has grown significantly in recent years, it remains a modest part of their overall portfolios. Life and health cover also accounts for only a small share of the wider Chinese market, which is savings focused.