Ample Capital Should Help North American P&C Sector Weather COVID-19

Impact stress tests reflect that ample capital buffers at North American property-casualty (P&C) insurers and reinsurers should make any fallout from COVID-19 manageable for those companies, according to S&P Global Ratings.

Financial market turmoil and the ensuing recession pose a greater pitfall to those insurers and reinsurers than underwriting exposure to COVID-19 pandemic risk, S&P said.

The rating agency said it doesn't anticipate significant rating activity for North American P&C insurers and reinsurers as a result of the pandemic, though the outbreak could hurt some outliers and insurers already facing ratings pressures before the coronavirus hit.

S&P said it's maintaining its stable outlook for the North American property-casualty insurance and reinsurance sectors. "We are less likely to lower ratings because of the capital adequacy of the sector as a whole, which was at a record high as of year-end 2019," S&P said in its comments. "We also foresee that the rate increases made in 2019 will reap earnings in 2020 on an earned basis, providing a slight tailwind."

In addition, S&P said it believes that the sector's underwriting exposure to the fallout from the COVID-19 outbreak is a small portion of the industry's business mix and should have only a modest impact on earnings.

S&P said it thinks PC insurers are more resilient to recession than other industry sectors, though they do expect a decline in net premiums due to the anticipated sharp decline in economic activity resulting from social distancing measures taken to control the outbreak. "Growth in premiums tends to track GDP closely, and as such, insurance exposures will likely decline," S&P said.

The rating agency noted that while the COVID-19 pandemic has caused a significant increase in financial market volatility, the initial result of its stress tests show that the majority of North American reinsurers rated by S&P are able to maintain capital adequacy in line with their ratings.