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Insurance-backed securitisations resilient in the near-term: S&P

27th March 2020 - Author: Matt Sheehan

S&P Global Ratings has said that it expects insurance-backed securitisations to show resilience to the coronavirus (COVID-19) outbreak in the near-term, although the longer-term outlook remains more uncertain.

S&P Global RatingsThe rating agency said insurers and reinsurers based in Europe, the Middle East, and Africa (EMEA) and the US should hold firm against the economic impacts of the virus, without suffering earnings and capital shocks.

There are currently 30 outstanding insurance premium finance and structured settlement securitizations rated by S&P, including 12 series of insurance premium finance bonds, with an aggregate issuance amount of approximately $3 billion, and 18 structured settlement securitizations, with an outstanding issuance amount of approximately $481 million.

The ratings on insurance premium finance and structured settlement securitisations depend on the credit of the underlying insurance carriers.

For example, if the underlying insurance carriers are downgraded three or more notches, S&P warned that it may lower its ratings on the related securitisations.

To test sensitivity of securitisations to insurance carrier default, S&P ran two scenarios, first assuming a one-notch ratings downgrade of each of the top 10 underlying insurance companies, and the second assuming three-notch downgrade.

Based on the results of this analysis, S&P believes that insurance-backed securitizations generally have sufficient enhancement to withstand a one-notch credit rating deterioration, but the ratings would be vulnerable if each of the top 10 underlying insurance carriers were to be downgraded three notches or more.

Analysts also acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak, and noted that the longer and more widespread the pandemic, the greater the potential for negative rating actions in the insurance sector and, subsequently, insurance-backed securitisations.

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