The economic impact of COVID-19 has worsened sharply, posing a challenge to insurers’ financial resiliency. This could lead to targeted downgrades or outlook changes for Asia-Pacific insurers over the coming weeks, according to S&P.
In a report, the international ratings agency said that that the regional insurance industry’s robust capital position and limited exposure to loss-affected lines of business would enable most insurers to absorb the impact of financial market volatility and manage the marginal increase in claims.
Life insurers are more at risk than other insurers, especially those with relatively thin capital buffers and significant exposure to financial market volatility through their asset portfolios or product offerings.
On March 11, the World Health Organization designated the outbreak a pandemic. The rate of infection is also accelerating globally and the centre of the pandemic has shifted from China to Europe and the US. According to S&P’s forecast, the global economy will be in recession in 2020.
The economic disruption associated with the pandemic, alongside a rapid decrease in oil prices, has resulted in extreme volatility in the capital markets. This, the report said, will have severe implications for the global credit markets. However, the average rating across the Asia-Pacific insurance industry is ‘A’, which is S&P’s highest average rating for any corporate or financial services industry. S&P said that it does not anticipate any widespread downgrades across the industry.
However, some ratings will be affected. S&P revealed that it has downgraded one insurer and placed two insurance ratings on a negative outlook or CreditWatch. In each case, the implications of COVID-19, combined with other factors, causing deterioration in the firms’ creditworthiness.
