Global ratings agencies Fitch and AM Best predict coronavirus will cause volatility in the financial markets alongside an increase in insurance claims and losses
Two major financial ratings agencies have predicted coronavirus will have an impact on the losses of insurers by reducing the value of their investments and increasing claims.
AM Best and Fitch Ratings both warned this could be the result of volatility in the financial market, as the virus disrupts the economy, with the former also expecting an increase in claims in the US.
Global giant American International Group (AIG) could already be seeing the impact, with today (March 10) bringing a 13.3% drop in share price.
A report from an analysis led by Fitch senior director Federico Faccio said: “The main threat to European insurers’ credit quality from the coronavirus is the resulting disruption to financial markets
“Stress on equity and credit markets, or further declines in interest rates, would weaken insurers’ earnings and capital, while reduced access to capital markets would put pressure on companies seeking to refinance maturing debt.”
Likewise, AM Best’s latest report on the impact of the disease mentioned that “volatility in the wider financial markets could affect insurers’ results and financial strength”.
Despite the potential hit to financial strength, both agencies agree that insurers in Europe and the US are well capitalised to withstand the impact — but Fitch warned “prolonged and severe market disruption” could still lead to downgrades.
Insurance claims likely to increase in the US
According to AM Best’s report on the impact of coronavirus on the US insurance industry, claims could increase for health coverage providers.
The ratings agency said higher-value cases could be driven by “co-morbid” patients — people claiming for more than one health issue — and those considered “high acuity”, meaning they require more dedicated care.
Another development that could hike claims is an increase in the number of laboratories in the country that can test for coronavirus.
This following a 29 February announcement by the FDA relaxing rules preventing laboratories outside of the CDC testing for the virus.
Since AM Best said it “expects insurers will be liable for the testing and coronavirus treatment of their members” — this could result in higher losses for insurers, especially because the pricing will vary between private labs.
Insurers likely to incur losses from testing and treating coronavirus
California, New York, Washington, Vermont and Maryland all currently enforce rules to this effect, and it’s expected that more will announce similar rules.
“AM Best expects other states to follow New York’s lead, given concerns that individuals may avoid getting tested or seeking treatment due to out-of-pocket costs,” the agency said.
The Trump administration signed-off on a bill on March 6 that authorised $8.3bn of emergency coronavirus funding, but this is being spent on vaccine development, responding to the spread of the virus and medical supplies — no funding has been allocated to help insurers pay for treatment.
A global recession could hit trade credit insurance providers
Yesterday (March 9), another global ratings agency, Moody’s, reported that the risk of a global recession had increased, as coronavirus hit both the supply and demand side of markets.
AM Best’s Europe-focused report highlighted that a slip into recession would most likely impact on trade credit insurers — those that write risk related to protecting businesses from financial losses — due to an increased number of bankruptcies.
But the agency said claims will take some time to materialise, as policies generally are not triggered until payments are considered “outstanding”.
“Credit underwriters continuously monitor exposures and are ready to cut limits
when they identify an issue,” it added.