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Satyendra Pathak
Doha
Most insurers in the GCC region benefit from robust capital buffers and should be able to absorb COVID-19-related claims and capital market volatility, S&P Global Ratings said in a report released on Wednesday.
“We understand that medical costs relating to the diagnosis and treatment of COVID-19 will be partially or even fully covered by governments in the region. As the GCC has a relatively young population, with only 5-10 percent of the population in each country older than 55, the number of severe cases and mortalities should also be lower than in heavily affected countries such as Italy, where about 35 percent of the population is 55 or older,” the report said.
“We believe that the impact on insurers from business-interruption claims will also be limited because only a small number of reinsurers or primary insurers in the region write this type of cover,” it said.
Unlike in some states in the US where authorities have suggested that insurers cover all business-interruption claims, the report said, there are currently no indications that GCC governments would require insurers to cover these types of claims.
Government-imposed restrictions on movement will also rein in claims on motor and medical lines, which together represent more than 60 percent of total GWP in most Gulf markets.
“For example, we understand the number of hospitals and medical center visits for non-urgent treatment has declined while people drive less frequently and work from home. This should lead to fewer medical and motor claims, and may offset an increase in any COVID-19-related medical claims costs,” the report said.
The report, however, said that the volatility in capital markets resulting from the COVID-19 pandemic and oil price shock could weaken the credit quality of some insurers in the GCC region.
The significant fall in equity markets, widening bond spreads, and ongoing decline in real estate prices will damage earnings and capital buffers of insurers with material exposure to these asset classes, the report said.
“The expected slowdown in premium collections, as many businesses try to delay their premium payments in an attempt to survive, could put further stress on liquidity, asset quality, and consequently on credit conditions for insurers over the coming months. This could lead to some negative rating actions in 2020, particularly on insurers that have thin capital buffers,” it said.
“We now anticipate that gross written premiums (GWP) will decline in most GCC markets in 2020 because of a sharp drop expected in consumer spending and economic activity. It is likely that many business will remain closed or operate shorter hours, and government-sponsored infrastructure projects will probably be delayed until the spread of the virus is contained,” the report said.
Doha
Most insurers in the GCC region benefit from robust capital buffers and should be able to absorb COVID-19-related claims and capital market volatility, S&P Global Ratings said in a report released on Wednesday.
“We understand that medical costs relating to the diagnosis and treatment of COVID-19 will be partially or even fully covered by governments in the region. As the GCC has a relatively young population, with only 5-10 percent of the population in each country older than 55, the number of severe cases and mortalities should also be lower than in heavily affected countries such as Italy, where about 35 percent of the population is 55 or older,” the report said.
“We believe that the impact on insurers from business-interruption claims will also be limited because only a small number of reinsurers or primary insurers in the region write this type of cover,” it said.
Unlike in some states in the US where authorities have suggested that insurers cover all business-interruption claims, the report said, there are currently no indications that GCC governments would require insurers to cover these types of claims.
Government-imposed restrictions on movement will also rein in claims on motor and medical lines, which together represent more than 60 percent of total GWP in most Gulf markets.
“For example, we understand the number of hospitals and medical center visits for non-urgent treatment has declined while people drive less frequently and work from home. This should lead to fewer medical and motor claims, and may offset an increase in any COVID-19-related medical claims costs,” the report said.
The report, however, said that the volatility in capital markets resulting from the COVID-19 pandemic and oil price shock could weaken the credit quality of some insurers in the GCC region.
The significant fall in equity markets, widening bond spreads, and ongoing decline in real estate prices will damage earnings and capital buffers of insurers with material exposure to these asset classes, the report said.
“The expected slowdown in premium collections, as many businesses try to delay their premium payments in an attempt to survive, could put further stress on liquidity, asset quality, and consequently on credit conditions for insurers over the coming months. This could lead to some negative rating actions in 2020, particularly on insurers that have thin capital buffers,” it said.
“We now anticipate that gross written premiums (GWP) will decline in most GCC markets in 2020 because of a sharp drop expected in consumer spending and economic activity. It is likely that many business will remain closed or operate shorter hours, and government-sponsored infrastructure projects will probably be delayed until the spread of the virus is contained,” the report said.
