Life insurers with high exposure to mortality risk could face the most potential credit risk if the spread of the coronavirus in the US continues to accelerate, according to Fitch Ratings.
However, the impact on life insurers would vary based on product mix, use of reinsurance and potential geographic concentrations, Fitch added, with a significant portion of US reinsurance risk borne by European life reinsurers.
Therefore if US mortality losses were to rise significantly, a large portion of the loss would be passed on to reinsurers, as approximately 30% of individual life insurance in the US (based on recurring new business) is reinsured.
Reinsurance is also concentrated heavily around just five reinsurers that make up almost 90% of market share – namely SCOR Global Life (US), Reinsurance Group of America (RGA), Swiss Re, Munich Re and Hannover Life Re.
Rating agency AM Best said last week that reinsurers are likely to face the highest risks from the coronavirus outbreak, due to their generally higher exposure to mortality and morbidity risks, compared with primary life & health insurers.
The coronavirus has infected nearly 17,500 people since first being identified by the World Health Organisation (WHO) on December 31st.
The vast majority of cases are in China, particularly in the city of Wuhan where the virus is thought to have originated, with 362 people now believed to have been killed.
Currently, there has only been one death recorded outside of China, but the virus has spread to at least 24 countries, including the US, the UK, France, Australia, Japan, Canada and South Korea, sparking fears of a global crisis.
Notably, the number of coronavirus cases worldwide has now surpassed that of the 2003 SARS epidemic, although the death total is currently well below the 774 documented over the roughly 6-month SARS outbreak.
Fitch considers it too early to tell whether the coronavirus will be a major event for life insurers, but doe not expect it to have a material effect on the credit ratings of US companies in the near term.