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Investment losses present biggest virus exposure for insurers: Report

Container ship

Investment losses rather than claims will likely cause the biggest hit to insurers from the coronavirus outbreak, according to a report from Moody’s Investor Services Inc.

Trade credit insurers, however, could see higher claims resulting from pressure on China’s economy, the New York-based rating agency said in a report Monday.

“Falling and volatile financial markets will weigh on insurers’ capitalization and profitability,” the report said.

European insurers’ Solvency II capital adequacy ratios are particularly sensitive to financial market volatility and changes in credit spreads, the report said.

“We also expect weaker investment gains on insurers’ equity portfolios, a steady source of earnings support in recent years,” Moody’s said. “A prolonged period of market weakness would also hurt insurers’ investment income and reduce their access to capital. Some insurers have already postponed debt issuances due to adverse market conditions.”

Incidence of COVID-19, a disease caused by a member of the coronavirus family, had reached 88,930 cases globally as of Monday, according to data from the World Health Organization. China accounted for 80,174 of the confirmed cases.

Sales of life insurance coverage could decrease in China, as the economy is hit by quarantine measures and business shutdowns, and global life and health reinsurers could see increased mortality claims if the disease spreads, Moody’s said.

But commercial property/casualty claims will be modest despite plant closures and interruptions to supply chains, the report said.

“While insurers underwrite significant volumes of supply chain and business interruption cover, infectious diseases are typically excluded from such policies, meaning that insured losses will be low,” Moody’s said.

Insurers could see an increase in property damage claims when plants in affected areas are restarted after the crisis subsides, but again some policies may not respond to claims because most property policies require losses to be caused by an insured peril, the report said.

“However, policy extensions to include denial of access or business interruption have become more common in certain sectors, including hotels, restaurants and schools. This could give rise to higher claims for insurers,” Moody’s said.

Trade credit insurers, which cover nonpayment by debtors, could be hit as a result of an economic slowdown in China, the report said.

“The negative economic impact of the coronavirus outbreak on China increases the risk of a spike in claims for trade credit insurers, although it is too early to assess by how much claims might rise,” the report said.

More insurance and risk management news on the coronavirus crisis here.