COVID-19 Crisis Could Cut Life Insurers' Assets 2.2%: Fitch Analysts

Analysts at Fitch Ratings say they’re still not sure what to expect from the COVID-19 pandemic, or from the pandemic’s economic impact.

But, if the pandemic ends up being comparable to the Fitch stress test scenario, some North American life insurers could end up facing rating downgrades.

(Related: Fitch Unveils COVID-19 Test Scenario)

Julie Burke, Douglas Meyer and other Fitch analysts talked about how they see the North American life insurance sector earlier this week, at a webinar Fitch organized to update investors and others on its efforts to assess the financial services companies’ readiness for hard times.

Burke, head of North American insurance at Fitch, emphasized that predicting the effects of the COVID-19 crisis is difficult.

“The COVD-19 health crisis has brought on an unprecedented contraction, the likes of which we’ve never seen in our lifetime,” Burke said.

Fitch has tried to conduct general crisis readiness reviews, using criteria released on April. Fitch has assumed, for example, that severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), the virus that causes COVID-19, will infect about 5% of the population, send 15% of the infected people to the hospital, and kill about 1% of the infected people.

Fitch is also assuming that about 12% of the bonds at the BBB, barely investment-grade level will see their ratings fall to junk level.

If the actual COVID-19 pandemic ends up being similar to the stress test scenario, then the crisis could end up reducing North American life insurers’ assets by about 2.2%, Meyer said.

That compares with a reduction of about 3% during the 2007-2009 Great Recession.

Losses on investment portfolios will probably be somewhat less severe, but the impact may be more highly concentrated in areas such as commercial mortgage loans, Meyer said.

Fitch is also assuming that the crisis will be especially hard on products that may be affected by investment market fluctuations, such as variable annuity living benefits guarantees and variable annuity death benefits guarantees, Meyer said.

— Read Industry Starting to Recover From the Stresses of Last 3 Years, on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.