Fitch Ratings sees a potential for North American insurers to be faced with key vulnerabilities and unforeseen downside risks amid the fallout from the coronavirus pandemic.
Such risks include outsized investment exposure with market volatility exacerbating potential issuer defaults, increased mortality risk and elevated claims.
Fitch revised the life and health insurance sector rating outlooks to negative from stable amid the coronavirus fallout in March, with approximately 93% of public and privately rated North American insurers having been reviewed since March 1.
The ratings agency says the US life sector is most exposed to capital market volatility, with the industry’s stable rating outlook going into 2020 vulnerable to slowing economic growth, macroeconomic uncertainty tied to global trade and monetary policy, and late cycle credit market conditions.
In addition, health insurance is seen as having many moving parts and a lot of uncertainty, given the lack of clarity around the true infection rate.
Health insurers, while facing higher-than-anticipated acute care claims, have lower interest rate and investment risk and may temporarily benefit from the pandemic, according to Fitch
Property and Casualty insurers, while facing lower risk from the pandemic, will see earnings pressure from claims losses in several segments and lower investment income.
Furthermore, reinsurers generally mirror the risk trends of non-life companies with several large global insurers likely to absorb significant claims losses from these events.
As with banks, Fitch says ratings actions have been less severe relative to those during the global financial crisis thus far, when investment-grade securities fell into non-investment-grade territory or suffered deep defaults.
Insurance companies are supposedly managing better due to improved liquidity and higher capitalization, with more conservatively positioned investments and covered debt covered maturities.
