Global Issues

Coronavirus Outbreak Highlights Insurers’ Pandemic Risks, Importance of Stress Testing

Life, Health industries remain well-capitalized to withstand any pressures

Excerpts from a new A.M. Best report, Coronavirus Highlights the Importance of Stress Testing. Reprinted with permission. Visit ambest.com to access the full report

January 29, 2020 — OLDWICK, N.J.–(BUSINESS WIRE)–Although U.S. life/health (L/H) insurers and global reinsurers would face a greater risk of higher mortality and morbidity should a widespread coronavirus outbreak occur, AM Best believes these industries remain well-capitalized and in a strong position, aided by long-standing pandemic-related stress testing, to withstand any pressures.

A new Best’s Commentary, titled, “Coronavirus Highlights the Importance of Stress Testing,” notes that the World Health Organization has not declared the recent coronavirus outbreak a public health emergency of international concern, which would accelerate national level efforts to create a vaccine, as well as trigger more stringent travel restrictions. The economic implications of this outbreak are hard to predict, but are likely to be significant. China’s gross domestic product contracted by an estimated 1% in 2003 because of the SARS outbreak. SARS also was a coronavirus and the outbreak coincided with the Chinese New Year. However, China’s impact on the world economy is more significant today than it was in 2002-2003, so a potential slowdown might be a drag on worldwide growth.

Industries better positioned to combine the impact of a contraction in GDP with increases in mortality and morbidity

Overall, the L/H sector can bear the cost of mortality and morbidity stresses, although insurers need to be able to quantify all aspects of pandemics, including economic and operational risks. Most L/H companies have addressed pandemic risks by conducting stress tests for various modeled assumptions. Additionally, insurers with tested economic capital models are positioned better to combine the impact of a contraction in GDP with increases in mortality and morbidity. Enterprise risk management remains a critical aspect of how companies handle these events. L/H and health insurers have had strong profitability through the third quarter of 2019, which should result in increases to their already high capital levels.

Reinsurers may face higher levels of risk than L/H insurers, as their risk profiles entail higher exposures to mortality and morbidity risks. However, global reinsurers have been broadening their risk exposures in recent years in an effort to minimize the concentration of mortality and morbidity risks. Property/casualty insurers may suffer some losses due to business interruption, event cancellations and travel related covers, but these losses will be manageable for them. Overall, technological advances should assist in minimizing any impact, due primarily to communications and reductions in response time for care delivery.

the World Health Organization has not declared the recent coronavirus outbreak a public health emergency of international concern, which would accelerate national level efforts to create a vaccine...

To access the full copy of this commentary, please visit here.

For a video interview on this commentary with George Hansen, senior industry research analyst, and Bruno Caron, senior financial analyst, please visit here.

 

 

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.