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For U.S. Life Insurers, Coronavirus Still Looks Like a Nuisance: S&P Analysts

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Life insurance rating analysts at S&P Global Ratings are watching the news about the new coronavirus outbreak, but, at this point, they are talking much more about other potential threats.

Neil Stein, a director at S&P Global Ratings, today spent most of his time during an S&P Global U.S. insurance sector earnings and credit update discussing concerns about low interest rates, and the possibility that some of life insurers’ investments could go bad.

Even if the United States experienced a coronavirus outbreak as severe as the 1918 flu pandemic, “that would be manageable, considering insurers’ overall financial strength,” Stein said.

(Related: How 6 Regions’ Insurance Investment Managers Rate Geopolitical Risk)

S&P organized the update to give investors and others a look at how the firm’s analysts see the U.S. insurance sector.

S&P rating analysts’ views matter because S&P credit ratings affect companies’ ability to borrow money.

S&P insurer financial strength ratings affect insurers’ ability to write insurance.

S&P recently issued a report on pandemic risk. S&P analysts concluded that an epidemic similar to the 1957 Asian flu pandemic could lead to about $7 billion in extra U.S. mortality claims and eat up about 2% of U.S. life industry capital.

A severe pandemic comparable to the 1918 pandemic could lead to about $52 billion in extra claims and eat up about 12% of total U.S. life industry capital, according to the analysis.

Since S&P issued that analysis, the illness caused by the new coronavirus has been dubbed Covid-19 by the World Health Organization, and the number of cases occurring outside China has increased.

During the insurance sector update, S&P analysts said they are monitoring the situation but assume in their baseline economic scenario that new coronavirus transmission in the United States will end after March and reduce U.S. real gross domestic product by only about 0.2 percentage points.

Stein expressed more interest in interest rates and the quality of life insurance investments, but he said that, at this point, life insurers appear to have effective strategies for coping with low rates and managing investments in a reasonable way.

At typical U.S. life insurers, “capitalization will remain supportive of ratings,” Stein said.

— Read China Oceanwide Donates $1.4 Million to Virus Fight, on ThinkAdvisor.

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