Speed of Change Will see Rapidly Shifting Outlooks

Fitch Ratings has spelt out its worst case scenarios for the global insurance sector but has stressed that the dynamics of the pandemic are moving too fast for any hope of certainty at this stage.

The firm hosted a webinar to look at the ratings impact on insurers and Keith Buckley Managing Director at the firm said the market was facing a situation unlike anything previously.

“This is one of the most significant credit events in our lifetime and it is also the fastest developing,” he said. “As such whilst we have a view at present that thinking may change tomorrow, next week and certainly in six weeks from now.”

He said the insurers were being tested on the asset side of the balance sheet and with an uptick in claims due to the pandemic in classes such as healthcare, life, trade credit, event cancellation and business interruption.

He warned that the changes in interest rate levels will also have an impact particularly on reserving assumptions.

“We said earlier in the year that insurance fundamentals across the industry were under pressure,” he added

However, Mr Buckley added that there is also potential upsides for the industry with reduced claims from the inactivity caused by the large scale social isolation and lockdown across the world.

The reduction in motor travel, and the use of ancillary medical insurance for issues such as elective surgeries and dental treatment will have a positive effect.

However he warned: “From a reputational, regulatory and political point of view it would not look good for insurers to be reporting record profits in certain classes of business due to the Covid-19 pandemic.”

Mr Buckley said Fitch was looking at a three or four point impact on losses ratios from the pandemic but stressed it was a general strategy from the firm and was in the broadest sense.

The firm said the uncertainty over the level of infections and deaths from the pandemic made any assumptions extremely flexible and added that the company fully expected that their views would change as the pandemic continued to develop alongside the level of success in fighting the spread.

However Fitch has some key indicators built into what it calls its severe scenario.

These include a decline of 60% in the global share markets, a fall over 205 or more in high yield investments and a global Covid-19 infection rate of 15% or more.

“These will not be implemented into our rating decisions at present but have been drawn up to allows us to view the potential future impact,” Mr Buckley added.

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