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DBRS Morningstar Releases Commentary on Impact of Coronavirus on Property and Casualty Insurers

DBRS Morningstar released a commentary entitled “Coronavirus: Likely Increases in P&C Insurance Claims in Certain Business Lines; Financial Markets’ Volatility Will Affect Investment Portfolios” that discusses the ways the Coronavirus Disease (COVID-19) can be expected to affect the Property and Casualty insurance industry.

The key highlights include:

(1) Insurance clients in the hospitality and tourism sectors are particularly exposed to incurring losses as a result of large customer concentration in one location.

(2) Event cancellation insurance is most likely to pay out compared with other policies. However, travel, business interruption, workers’ compensation, and general liability policies could also be affected.

(3) The most apparent impact for insurance companies in the short term will be in the reporting of realized or unrealized gains from equity market fluctuations and movement in interest rates. This will be partly mitigated by higher underwriting revenues because of hardening of insurance markets globally.

The Coronavirus Disease (COVID-19) continues to spread across the globe causing wide-spread anxiety and disruption to organizations, including voluntary and involuntary quarantines. Property and casualty (P&C) insurance companies could incur insurance underwriting losses directly as a result of the outbreak. However, potential losses are not limited to insurance underwriting losses. Equity market fluctuations and cuts in interest rates by central banks to limit the economic fallout from coronavirus may also affect investment income because of the fluctuations in realized and unrealized market losses.

As the virus continues to spread across the globe, the most immediate impact for P&C insurance companies will be in the valuation of equity investments and fixed-income assets, which are affected by equity and bond market volatility. Underwriting results may not be affected materially for the time being. However, claims will start to manifest in some niche industries like hospitality, tourism, transportation, and entertainment as trips and events get cancelled or more people become infected.

We consider the coronavirus to be largely an economic event for now, which will not result in significant underwriting losses for the P&C industry overall. However, some lines such as events cancellation and travel insurance will experience an increase in claims.