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The fallout from the coronavirus pandemic and tumbling oil prices threaten the earnings of insurers in the Gulf, S&P Global Ratings said on Wednesday, possibly leading to negative rating actions.
“Most insurers we rate in the GCC [Gulf Cooperation Council] region benefit from robust capital buffers and should be able to absorb COVID-19-related claims and capital market volatility,” S&P said in a report.
“However, the significant fall in equity markets, widening bond spreads, and ongoing decline in real estate prices will damage earnings and capital buffers of insurers with material exposure to these asset classes,” the ratings agency said.
Continued market volatility is the most likely cause for deteriorating credit conditions for insurers that could lead to negative ratings actions, S&P said. It will closely monitor the pandemic’s impact on insurers’ business and financial risk profiles.
It said many insurers, especially in the United Arab Emirates, Kuwait and Qatar, still have relatively high exposure to high-risk assets.
S&P added that measures to contain the pandemic and historically low oil prices could lead to “a surge in liquidity issues or even defaults among non-financial entities,” and therefore foresees a slowdown in collections of premiums as businesses try to delay payments.
“This could put further stress on liquidity management and asset quality of insurers over the coming months.”
(Reporting by Yousef Saba, editing by Louise Heavens and Emelia Sithole-Matarise)
Photograh: King Fahd road empty in the Saudi capital Riyadh, after the Kingdom began implementing an 11-hour nationwide curfew. Photographer: Fayez Nureldine/AFP/Getty Images