Coronavirus threat to insurers: higher claims, lower gains

The global insurance industry faces a two-pronged risk from the coronavirus outbreak — higher claims and financial market effects, says Moody’s Investors Service Inc.

In a new report, the rating agency said that insurers and reinsurers are directly exposed to the coronavirus through a potential spike in claims.

“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,” Moody’s said.

Additionally, the industry may face higher claims for other types of insurance, including trade credit and event cancellation insurance, it said.

“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,” it said.

Indirect effects due to heightened financial market volatility and lower bond yields will have a bigger impact on insurers’ capital and profitability, it suggested.

Moody’s said it expects to see weaker returns on insurers’ investment portfolios, including losses on equity exposures.

“Sharp deterioration in financial markets over the past week will weigh on insurers’ profitability and capitalization,” said Brandan Holmes, vice president and senior credit officer at Moody’s.

“European insurers’ Solvency II ratios are particularly sensitive to financial market volatility and movements in bond yields and credit spreads,” Holmes added.

Finally, if the outbreak triggers an economic slowdown this will also hurt business volumes for insurers, it said.