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US Insurers' First-Quarter Earnings Likely To Reflect COVID-19's Capital Market Impact

Hand holding globe with face mask on it on top of pile of dollar bills
April 17, 2020

COVID-19's impact on capital markets will influence US insurers' first-quarter earnings, according to S&P Global Ratings, though its effect on morbidity and mortality likely won't have as much of an impact on insurers' underwriting performance for the quarter.

Capital market volatility will hit the investment portfolios of US life, health, and property and casualty (P&C) insurers' investment portfolios, S&P said in a recent comment. Meanwhile, underwriting performance will vary across the three sectors. The rating agency said its outlooks for all three US insurance sectors remain stable.

US P&C insurers likely will be the least affected of the three sectors in the first quarter, "with underwriting profitability safe for now," S&P said. US health insurers' first-quarter underwriting performance will likely exceed expectations due to the deferral of nonemergency medical services. For US life insurers, COVID-19 will present "a serious test to their hedging strategy," according to S&P.

"The much-needed shelter-in-place guidelines used to slow the spread of the pandemic have unfortunately significantly affected capital markets and economic conditions in the first quarter," S&P said. "While conditions in the financial markets have improved in recent weeks, investment portfolios across the three insurance sectors—life, health and property-casualty—have likely felt the impact of equity volatility and weakening credit and debt markets."

S&P said it doesn't expect COVID-19 to have a significant impact on P&C companies' first-quarter underwriting profits and cash flows. Underwriting performance should meet or exceed expectations due to insurers' recent premium actions and a relatively benign loss environment during the quarter, though impaired investment assets will likely strain capital, S&P said.

"For commercial P&C insurers, given the timing of the COVID-19 impact on business shutdowns, there will likely be a false bias benefiting underwriting earnings and premium volumes due to the economic growth trends and positive rate environment at the tail-end of 2019, although this we expect to be unsustainable for full-year 2020," S&P said.

For the remainder of the year, the rating agency said that legislation on business interruption coverage, increased unemployment, business shutdowns, and market uncertainty will be its main focus areas for US P&C insurers.

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