Underwriting Global Health

Fitch Ratings: Coronavirus Not Yet a Reason for Alarm for US Health Insurers

Impact of a pandemic on the industry’s credit profile not ‘materially adverse’ at this time

New York-29 January 2020 — Following the arrival in the U.S. last week of a new coronavirus believed to have originated in Wuhan City, China, Fitch Ratings has been cautiously monitoring developments associated with the virus’ spread to determine its potential effect on the credit profile of health insurers operating primarily in the U.S. Although health insurers normally incorporate a certain level of morbidity associated with seasonal influenza into premium rates each year, premium rates do not incorporate an expectation for a pandemic. However, Fitch does not currently expect the new coronavirus, referred to as “2019-nCoV,” to have a material adverse effect on the operating performance or overall credit profile of U.S. health insurers.

Given the existing low number of confirmed cases and apparent lack of person-to-person transmission in the U.S., as well as containment measures being taken by U.S. authorities, Fitch is currently anticipating that the arrival of 2019-nCoV in the U.S. will not significantly differ from SARS-CoV or MERS-CoV in terms of its effect on the credit profile of the U.S. health insurance sector. However, Fitch will continue to closely monitor progress of 2019-nCoV and will reflect any significant adverse developments in ratings as warranted.

Are Humans Now Contagious in the U.S.?

There were five confirmed cases reported in the U.S. as of Jan. 28, 2020; all infected individuals appear to have contracted the virus at its epicenter in Wuhan. Dozens of additional suspected cases in the U.S. have resulted in negative test results, but dozens more are being monitored and tested. While CDC officials have reported that there are currently no confirmed cases of the virus being transmitted from person to person in the U.S., Chinese authorities have reported that they believe infected individuals can be contagious before symptoms develop.

Although virus-associated mortality rates are more crucial for life insurers than health insurers, the costs to health insurers of treating the illness escalates with the severity of associated symptoms and fatality rates typically reflect severe symptoms...

While 2019-nCoV was just recently discovered and containment efforts are in somewhat early stages, Fitch believes that its rapid spread in China, while not alarming, merits close observation for its effect on U.S. health insurers. On Tuesday, Jan. 28, 2020, the World Health Organization reported 4,537 confirmed cases of 2019-nCoV in China and 106 deaths attributed to the virus.

To put 2019-nCoV into perspective, SARS-associated coronavirus (SARS-CoV), which according to the CDC was first reported in Asia in February 2003, resulted in 8,098 known infections worldwide (eight in the U.S.) and 774 deaths (none in the U.S.). Middle East Respiratory Syndrome Coronavirus (MERS-CoV), which reportedly originated on the Arabian Peninsula in 2012, had a fatality rate of 30% to 40%. Only two individuals, both of whom were healthcare providers who traveled to the U.S. from Saudi Arabia, tested positive for MERS in the U.S. in May 2014 and both recovered.

Mortality vs. Fatality

Although virus-associated mortality rates are more crucial for life insurers than health insurers, the costs to health insurers of treating the illness escalates with the severity of associated symptoms and fatality rates typically reflect severe symptoms.

Fitch incorporates risks of epidemics and pandemics into ratings for health insurers. Fitch generally considers broad geographic diversification of membership beneficial in terms of an insurer’s defensive position against regional outbreaks of infectious disease or morbidity associated with natural disasters. Resulting adverse capital impact can be alleviated through offsetting regional performance and broad rate increases in subsequent years.

However, Fitch notes that the five reported cases of 2019-nCoV, while in two general regions, are in four separate states: Washington, Illinois, California and Arizona. The appearance and transmission of the virus from several different regions could reduce the benefits of geographic diversification of membership. Whether detection measures at U.S. airports in other regions or efforts to prevent person to person infection in the U.S. have been successful in containing 2019-nCoV remains to be seen.