GC Capital Ideas recently featured a four-part article on Standard & Poor's (S&P) assessment of COVID-19's impact across the insurance and reinsurance markets. The series discusses the pandemic's effect on U.S. property & casualty (P&C) insurance, U.S. life insurance, global reinsurance and stress test modeling.
Global Reinsurance Sector
S&P recently changed its outlook for the global reinsurance sector to negative from stable, as it anticipates a number of negative rating actions and increasingly difficult business conditions for the sector over the next 12 months. S&P assigned a stable outlook to over 80 percent of global reinsurers and projects that reinsurers will not meet their cost of capital in 2020 for a third year in a row due to COVID-19 insured losses and lower investment returns.
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U.S. Property & Casualty Insurance Sector
As the COVID-19 pandemic continues and its impacts across insurance and reinsurance markets become increasingly clear, S&P is maintaining its stable outlook for the U.S. P&C insurance market and it assigned a stable outlook to 95 percent of P&C insurers. Thus far, the only ratings action S&P has taken is to revise the outlooks from positive to stable for certain insurers.
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U.S. Life Insurance
S&P maintains a stable outlook for the U.S. life insurance sector, and assigned a stable outlook to over 90 percent of life insurers. The rating agency views asset risk as the most significant and immediate concern for the sector, over other factors relating to equity market volatility, near-zero interest rates and increased mortality risk.
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Stress Testing
The reinsurance, P&C and life teams all conducted asset stress tests as the markets were starting to show dislocation in late February, as well as in mid-March, when the equity market was close to its recent low point. The asset stress tests show that the sector’s capital buffers remain resilient, with 86 percent of companies still at a strong, very strong or excellent level after the stress test.