Global insurance market is well-capitalized in the face of COVID-19

A woman wearing a protective face mask walks past Lloyd's building in London, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 6, 2020. (Reuters)
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Updated 19 May 2020

Global insurance market is well-capitalized in the face of COVID-19

  • Unlike other disasters, the pandemic has been hitting businesses, individuals and markets throughout the world, all at once

NEW JERSEY: Global insurers are well-capitalized to absorb the hit from rising claims and costs related to the COVID-19 pandemic, ratings agency AM Best said on Monday, citing a stress test it conducted to gauge the immediate impact of the outbreak on insurers’ financial strength. AM Best said most rated insurers and reinsurers performed well in its stress test and their capital levels provided an adequate buffer against a potential shock to their balance sheets.

Sensitivity to the COVID-19 pandemic was greater for life and health insurers with high asset and mortality risks, insurers with material exposures to mortgage loans, carriers operating in domiciles in higher country-risk tiers and companies with smaller capital bases.

Property and casualty insurers in the US and Canada performed relatively well in the stress test, compared with life, annuity and health insurers.

Most companies in the Asia-Pacific market generally performed well, as did those in Europe, the Middle East, Africa and Latin America, the test showed.

“Insurers are likely to see a significant hit to earnings in 2020, rather than a material decline in risk-adjusted capitalization,” said Mahesh Mistry, senior director, AM Best Rating Services.

“Reputational risk in certain markets may also be a problem, as any legal disputes become more visible to consumers, policyholders, regulators and legislators,” he added. Unlike other disasters, the pandemic has been hitting businesses, individuals and markets throughout the world, all at once. Customers are filing claims across numerous policy types, for workers’ compensation to events cancelation to broader commercial liabilities.

The disputes over claims continue just as the US is about to enter what meteorologists predict will be above-average Atlantic Ocean hurricane season, which could spur similar claims for insurers.

Executives, lawyers and analysts say the cost is sure to be in multiples of prior catastrophes including Hurricane Katrina, the Tōhoku tsunami or the 9/11 attacks. That could be tens of billions to half a trillion dollars or more, depending on how long the pandemic lasts and other variables.

The stress test analysis covered about 1,400 rating units worldwide, and focused on the impact of COVID-19 on underwriting and assets. The procedure for the test included gathering information from companies through a questionnaire.

Questions ranged from the impact of the disease outbreak on operations and financial position, previous pandemic risk stress test scenarios a company may have previously modeled and any adjustments to 2020 financial expectations.


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

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An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”