Coronavirus Claims of Estimated €80B Are ‘Manageable’ for Europe’s Insurers: Moody’s

The coronavirus outbreak has had an adverse, but manageable, impact on the European insurance sector, leading to a drop in company earnings rather than capital erosion, says Moody’s Investors Service in a report.

Central bank intervention has reversed much of the fall in equity markets and widening of credit spreads witnessed in the first quarter, and the insurance sector has taken advantage of attractive market conditions to boost its capitalization by issuing hybrid debt, according to Moody’s analysts. They regard this development as a positive, as new issuance has only modestly increased the insurance industry’s leverage from a low level.

For property/casualty insurers, the pandemic could generate an additional €50 to €80 billion of claims worldwide, equivalent to a mid-sized natural catastrophe event, mainly against event cancellation, business interruption and travel insurance policies. However, some P/C insurers will benefit from a sharp decline in motor claims due to lower vehicle usage during Europe’s economic lockdown.

“We see the industry as resilient overall, and believe it will be able to absorb the impact of the pandemic, leaving its capital broadly intact,” said Christian Badorff, a vice president and senior analyst at Moody’s. “The most severe long-term impact will likely be continued pressure on the sector’s investment returns due to a further fall in interest rates and an expected increase in corporate defaults.”

Life insurers are typically more dependent on investment performance, and are therefore more exposed to low rates and market volatility than property/casualty insurers.

Source: Moody’s

Topics Carriers Claims Europe Property Casualty COVID-19