Second COVID-19 wave could weaken insurers’ capital positions ‘more severely’

Written by Adam Cadle

14/07/2020

Prolonged lockdown scenarios, a severe second wave of COVID-19, or fiscal policies that prove ineffective in insulating economies could lead to a permanent loss of production and additional financial market dislocations which could in turn weaken insurers’ asset portfolios and capital positions more severely than seen to date.

S&P Global Ratings said global insurance ratings have proven resilient during the first wave of the COVID-19 pandemic as capital strength helped stave off widespread downgrades. Capital buffers will be eroded through the second half of the year as financial market losses and insurance claims pile up, particularly for industrial lines (re)insurers.

The ratings agency said asset risk outweighs insurance risk, particularly for life insurers and those with thin capital buffers.

“While not our base case, a prolonged economic recovery resulting in a more severe or prolonged financial market dislocation would put a strain on capital and earnings, increasing the risk of downgrades.”

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