That net profit figure rose from $ 56 billion in 2019 to $ 48 billion in 2018, said S&P, which analyzed the impact of the crisis on 16 global multi-line insurers (GMIs) it assesses. (The S&P GMIs analyzed for this report are listed below).
Because these global multi-line insurers “kicked off the pandemic with solid balance sheets and a good basis for recurring profitability, we expect earnings to pick up in 2021 and in the years to come, once vaccinations weaken the pandemic” – S&P Global Ratings
“[T]he crisis turned out to be a revenue event for MLGs, and a manageable event – not a serious momentous event, “said the report titled” COVID-19 took a bite of $ 8 billion on insurer profits global multilevel. “
COVID-19’s limited profit declines “show the benefit of running diverse businesses, both in terms of product lines and geographies, as the pandemic has clearly affected some businesses much more than others,” said S&P.
“It also indicates that MLGs are managing their risk exposure in a sophisticated manner and have been able to calibrate their risk appetite to reduce the erosion of their financial metrics following such an unforeseen event.”
Higher losses for European GMIs
European MLGs suffered larger losses than those in other regions, although they are very diverse, S&P said, noting that a large part of their losses came from non-European markets. “The higher losses of several European GMIs like AXA, Allianz and Zurich came mainly from their main lines of commercial property / damage. Overall, the aggregate losses of the three most exposed players (AXA, Allianz and Chubb) accounted for more than half of the $ 8 billion losses of the 16 GMIs. “
Non-life business was more affected
The pandemic has had a heavier impact on the non-life insurance business than on the life business, according to the report, explaining that there is “a strong negative correlation between those insured against death and segments of the population. died of COVID-19… ”
In other words, the highest death rates are among the elderly, who are less likely to purchase term life insurance, and those with low incomes, who are generally less likely to be insured, S&P said. ,
In the non-life sector, most of the technical losses linked to the pandemic have been concentrated on a few products: business interruption, event cancellation and to a lesser extent, credit insurance, the report continues.
Significant reinsurance losses
Profits for large reinsurers slipped even more than for GMIs, the rating agency said, explaining that reinsurance policies, especially in commercial lines, covered a significant portion of primary insurers’ exposure.
S&P has estimated COVID-19-related losses to be around $ 20 billion for the top 20 global reinsurers it assesses, nearly four times their aggregate end-of-year 2020 net income.
Impact on financial markets
While the impact of COVID-19 on the incomes of these 16 GMIs was manageable in 2020, the consequences of the pandemic on their financial strength go further, the report noted.
“Indeed, the most significant consequences of the pandemic have been on the financial markets,” he continued. “All over the world, long-term interest rates have fallen, even into negative territory for some. This has accelerated the dilution of fixed income investment returns for MLGs. This not only hurt income in segments such as general account savings business, but also long-term P / C lines such as general liability. “
For long-term P / C business, technical reserves are largely dependent on assumptions about long-term interest rates. And with interest rates at such low levels, insurers have been forced to increase their technical reserves in 2020, S&P said.
The report says stock market declines linked to COVID-19 also had a negative impact on MLG balance sheets, although the impact on income was not as significant. “In many cases, we have just observed a decline in capital gains realized on equity investments in 2020, without major impact on profitability,” continued S&P.
However, if the stock market recovery had been delayed beyond the first quarter of 2020, it could have weakened the capital adequacy of many GMIs, the report points out.
Future prospects
The additional losses from COVID-19 will be manageable in the future, S&P predicted.
S&P said its perspective on the industry outlook takes into account changes to the terms and conditions of commercial insurance policies, including the inclusion of exclusions for pandemic-related claims in policies renewed in 2021, as well as tariff increases, especially for those most affected. business segments, such as business disruptions or event cancellations.
“Because GMOs launched the pandemic with strong balance sheets and a good basis for recurring profitability, we expect profits to pick up in 2021 and in the years to come, once vaccinations weaken the pandemic,” the report said.
However, insurers are likely “to see an increase in claims in personal insurance, particularly in the auto industry, as lockouts cease or relax.”
up. They may also see an increase in health insurance claims due to medical treatments that were delayed in 2020 when medical institutions focused on severe cases of COVID-19. Overall, we anticipate a recovery in profits this year and next as the pandemic is brought under control, ”the rating agency continued in its report.
For the report, S&P analyzed six North American insurers (American International Group, Chubb, Prudential Financial, MetLife, Manulife Financial Corp., Sun Life Financial), seven insurers based in Europe, Middle East and Africa (AXA Group , Allianz, Aegon, Aviva, Prudential Plc, Zurich Insurance and Mapfre) and three insurers based in Asia (AIA Group, QBE Insurance, Tokio Marine Group).