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Bad times are in store for the insurance sector as more nations fall prey to the coronavirus or COVID-19 outbreak. Rating agency Moody’s sees a direct impact on global insurance companies due to a rise in claims and an indirect whiplash due to financial market fluctuations.
India's General Insurance Corporation of India (GIC) has an exposure to the global reinsurance market. So, any major impact on the reinsurance and insurance market globally will affect GIC Re's books.
“We currently expect these indirect effects to have a more material financial impact on the sector. Mortality levels would need to rise significantly to trigger a substantial rise in claims for life insurers. We foresee no significant impact from claims on mainstream non-life players,” Moody's said in a recent report.
Second order effects to cause greatest financial impact
The Coronavirus outbreak may trigger an economic slowdown and those fears are making financial markets increasingly volatile. Moody's sees an increasing likelihood of a global recession as long as the virus remains uncontained.
"Significant deterioration in equity markets and widening credit spreads, along with even lower interest rates, will weigh on insurers' profitability, capitalisation and business volumes," it stated.
Fears of additional cases being detected has been weighing on Indian financial markets. Benchmark indices ended in the red for the seventh consecutive session on March 2 as concerns over coronavirus continued to weigh on investor sentiment.
D-Street witnessed one of the most volatile sessions in the recent past on March 2, a swing of around 1,000-points, that wiped out most gains made on the Sensex.
Global reinsurers' pandemic exposure is significant at very high severity levels
Global reinsurers have benefited from a significant growth in China and the rest of Asia. However, the Moody’s report said their exposure to the region is still moderate relative to their overall portfolios. It foresees little impact on the reinsurance space given the "absence of significant international spread of the coronavirus and high mortality."
P&C commercial lines exposure is limited
Moody’s does not expect a significant rise in claims for commercial line insurers, although some sub-sectors, such as contingency business, may be affected. "Business interruption claims will be limited as these policies commonly exclude outbreaks of infectious disease, and pay only if physical damage occurs." it explained.
Trade credit insurers face rising claims due to economic slowdown
A slower consumer spending and negative pressure on China's goods and services sectors will likely lead to higher credit insurance claims. Moody’s expects a greater impact on these insurers' capitalisation and profitability in the event of a significant global economic slowdown. When it comes to India, it lists sectors like electronic goods, pharmaceuticals and automobile that have been hit due to a near shutdown of goods and component supply from China since January.