Analysts at S&P Global Ratings believe that US health insurers are likely to produce better-than-expected underwriting results in the first quarter of 2020 despite the COVID-19 pandemic.
On the other hand, life insurers will face a “serious test” to their hedging strategy due to the impact of equity volatility and weakening credit and debt markets.
S&P considerers P&C insurers to be the less affected than the other two sectors, and maintained its stable outlook for all three.
“We believe U.S. health insurers will likely report better-than-expected underwriting results as a deferral of nonemergency medical services will more than offset COVID-19-related medical claims in the first quarter,” explained S&P Global Ratings credit analyst Deep Banerjee.
However, analysts warned that risks remain for the remainder of 2020 as increasing unemployment levels will hurt premium growth for health insurers.
Similarly, a failure in containment efforts or a second wave of the pandemic could meaningfully disrupt operating performance for the health insurers.
“As for U.S. life insurers, they will face a true test to their hedging framework, especially as it applies to their market-sensitive liabilities,” Banerjee continued.
On the asset side, U.S. life insurers hold over $4 trillion of invested assets on their balance sheet. Impairments on these investments have been low over the last 10 years, but they may increase starting in the first quarter of 2020.
S&P anticipates that the amount of impairment will be a negative force, but does not believe that it will constitute a major shock to earnings during the first quarter of the year.
Turning to P&C insurance, S&P Global Ratings credit analyst Stephen Guijarro commented: “P/C insurers’ underwriting performance for the first quarter will be the least affected of the three sectors from this pandemic.”
That said S&P intends to closely watch state legislative initiatives over the remainder of 2020, which could attempt to override standard exclusions in business-interruption polices as continued restrictions add further stress to the economic disruption.
While pandemic risk has long been an excluded cover for business-interruption policies, a few states have sought to pass legislation to force insurers to pay for these coverages to specifically assist small businesses, the rating agency noted.
