Source: asiainsurancereview.com

Reinsurers may face higher levels of risk than life and health (L/H) insurers in the current coronavirus outbreak, as the risk profiles of the former entail higher exposures to mortality and morbidity risks, says AM Best.

The rating agency notes that reinsurers typically have higher exposures to mortality and morbidity risks, and may have as much as 40% or more of required capital held for these risks before diversification. But in an effort to minimise the concentration of these risks, global reinsurers have been broadening their risk exposures to include financial solutions, asset management solutions, and other annuity risk arrangements.

A new Best’s Commentary, titled, “Coronavirus Highlights the Importance of Stress Testing,” says that overall, the L/H sector can bear the cost of mortality and morbidity stresses, although insurers need to be able to quantify all aspects of pandemics, including economic and operational risks. Most L/H companies have addressed pandemic risks by conducting stress tests for various modelled assumptions.

P&C insurers may suffer some losses due to business interruption, event cancellations and travel related covers, but these losses will be manageable for them. Overall, technological advances should assist in minimising any impact, due primarily to communications and reductions in response time for care delivery.

Additionally, insurers with tested economic capital models are positioned better to combine the impact of a contraction in GDP with increases in mortality and morbidity. Enterprise risk management remains a critical aspect of how companies handle these events.