New Zealand insurers are well placed to absorb the effects of the Covid-19 pandemic according to S&P Global Ratings, although the company expects this year’s earnings to be subdued.
In a just-published report, the ratings agency says life insurers will likely experience a small decline in premiums over the next one to two years as a result of Covid-19, with lower new sales and an increase in lapses resulting from the increased financial pressure on consumers.
“Nevertheless, there is some evidence of an increased interest in life cover in some industry sectors due to direct exposure to Covid-19, which could partially offset other top-line impacts,” says the report.
“The offering of financial support to customers in financial difficulty, such as through premium deferrals may assist with retentions and longer-term profitability, but will likely hurt near-term earnings.”
…there is some evidence of an increased interest in life cover in some industry sectors due to direct exposure to Covid-19…
The agency does not expect a noticeable increase in mortality claims for New Zealand life insurers, barring a significant worsening of the pandemic.
S&P expects health insurers to be less affected by the pandemic, excluding any investment losses.
It notes that public healthcare systems have been structured to administer care to infected patients and meet hospital and medical care costs.
The report says: “We anticipate top-line premiums to stagnate, or decline slightly, for private health insurers due to higher unemployment and reduced discretionary spending. Several insurers have also deferred premium rate increases for the current year to support customers during the pandemic.”
S&P anticipates claims for private health insurers to decline substantially for the duration of the outbreak as hospitals defer elective surgeries and patients choose not to undertake certain procedures.
For most insurers, S&P expect slower new business sales, a slowdown in premium rate increases, and that insurance premiums will be affected by:
- Less face-to-face contact for agents and brokers slowing new business origination
- Affordability constraints
- Higher unemployment
- The reluctance of insurers to raise premiums
The agency says premium pressures could increase in the third and fourth quarters of calendar 2020 as government stimulus measures – such as wage subsidy payments – end. It expects aggregate premiums to progressively return to pre-Covid-19 levels from next year.