Reinsurance News

Extreme pandemic could exhaust 12% of US life capital: S&P

17th February 2020 - Author: Matt Sheehan

Analysts at S&P Global Ratings have estimated that an extreme pandemic event could result in $52 billion of excess net mortality claims for US life re/insurers, or about 12% of aggregate industry capital.

pandemicThis hypothetical stress test was conducted against the backdrop of the coronavirus outbreak, which has infected 71,442 people and caused 1,776 deaths since first being identified in December.

Currently, COVID-19 is largely concentrated in China with no reported deaths in the US, and S&P does not expect any significant impact on US life insurers.

But with the risk of a global pandemic now at the forefront of insurers’ minds, the study instead aims to measure what the potential impact of an extreme scenario could look like.

S&P also estimated the costs of a more moderate pandemic event, which it said could result in $7 billion of additional excess net mortality claims, or about 2% of outstanding industry capital.

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For the purposes of the extreme pandemic scenario stress test, S&P used the 1918 to 1919 Spanish flu pandemic as the basis for its model, adjusted to account for modern medical advances. And for the moderate scenario, the 1957 Asian flu was used.

Analysts then translated the excess deaths in the general population to excess insured deaths, before calculating the amount of excess claims that could result from the excess insured deaths for each stress scenario.

Finally, S&P used the current corporate tax rate to calculate the post-tax excess claims and their potential impact on life insurers.

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