According to DBRS Morningstar, life insurers have larger capital reserves than they did before the financial crisis of 2008-2009, which should help them deal with the impact of the COVID-19 pandemic.
Given the repercussions of the global pandemic, how can the life insurance industry be expected to fare over the next three years?
This is the question answered by global credit rating agency DBRS Morningstar in a report titled Assessing the Impact on Life Insurers' Financial Strength Ratings as the Coronavirus Crisis Unfolds. In this report, its analysts discuss the ratings prospects for life insurers around the world. In early March, when the crisis was just beginning, DBRS Morningstar had already published its predictions regarding the Canadian life insurance industry.
DBRS Morningstar points to one of the primary risks facing life insurers if the coronavirus is not contained. A significant spike in mortality claims could hurt their earnings.
If interest rates remain low for a prolonged period, the earnings of insurers could also be dented as a result of reduced diversification of their investment portfolio. A decline in fees, investment yields, and revenues from noninsurance businesses could also shrink their profits over the next three years, concludes DBRS Morningstar.
Insurers better capitalized
DBRS analysts nevertheless note one factor that should help life insurers preserve their profits during this crisis: they are better capitalized than before the market turmoil of 2008-2009.
“There will be greater emphasis on the ability of companies to restore capital levels if there were to be a material decline in capital buffers approaching minimum supervisory levels, as this could cause overall negative rating pressure,” concludes the report.
