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Second virus wave could erode re/insurer capital: S&P

14th July 2020 - Author: Matt Sheehan

Analysts at S&P Global Ratings have warned that re/insurers’ capital buffers could be eroded through the second half of the year if there is a second global wave of COVID-19.

While its insurance ratings have proven resilient through the pandemic so far, the firm believes many companies will suffer from the financial market losses and claims pile up that a second wave would bring.

“The risk of insurers’ invested assets losing value still outweighs the risk of rising insurance claims, particularly for life insurers and those with thin capital buffers,” said S&P Global Ratings credit analyst Dennis Sugrue.

“Nevertheless, a second wave of COVID-19 infections that disrupts the economic recovery or necessitates the widespread reintroduction of lockdown measures could disrupt the financial markets further, deepen the recession, and increase asset losses and insurance claims,” he explained.

S&P’s growth expectations for re/insurers globally in 2020 have diminished as a result of the slowdown in economic activity.

Analysts have previously noted that lower investment returns, mark-to-market losses, and heightened claims are set to erode earnings in 2020.

Yet for many sectors, top lines and earnings are expected to recover during 2021-2022 as non-life pricing continues to improve, alongside demand to remain stable for non-discretionary lines of business.

Additionally, S&P considers capital buffers at most re/insurers to be healthy enough to support ratings, particularly those in North America and EMEA.

So far in 2020, S&P has taken negative rating actions on 9% of its global insurance ratings, compared to 40% of the wider corporate and government ratings universe.

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