COVID-19 Crisis Could Cut Life Insurers' Assets 2.2%: Fitch Analysts

Fitch has tried to conduct general crisis readiness reviews, using criteria released on April. Fitch has assumed, for example, that severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), the virus that causes COVID-19, will infect about 5% of the population, send 15% of the infected people to the hospital, and kill about 1% of the infected people.

Fitch is also assuming that about 12% of the bonds at the BBB, barely investment-grade level will see their ratings fall to junk level.

If the actual COVID-19 pandemic ends up being similar to the stress test scenario, then the crisis could end up reducing North American life insurers' assets by about 2.2%, Meyer said.

That compares with a reduction of about 3% during the 2007-2009 Great Recession.

Losses on investment portfolios will probably be somewhat less severe, but the impact may be more highly concentrated in areas such as commercial mortgage loans, Meyer said.

Fitch is also assuming that the crisis will be especially hard on products that may be affected by investment market fluctuations, such as variable annuity living benefits guarantees and variable annuity death benefits guarantees, Meyer said.

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