COVID-19 and low oil prices threaten GCC insurers: S&P

DUBAI, April 4: 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 Gulf Cooperation Council (GCC), says S&P Global Ratings in a report published today on RatingsDirect: “GCC Insurers’ Earnings Are Under Threat From COVID-19 And Low Oil Prices”.

“Most insurers we rate in the GCC region benefit from robust capital buffers and should be able to absorb COVID-19-related claims and capital market volatility,” said S&P Global Ratings credit analyst Emir Mujkic.

“However, 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 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,” said Mr. Mujkic.

It is still too early to assess the full financial impact that COVID-19 will have on the insurance sector in the GCC given that the situation is still rapidly evolving, the report says. Economies in the Gulf are also hit by a sharp decline in the oil price to near $25 a barrel in March, the lowest level in 17 years, from about $66 a barrel in early January.