See table below, sourced from Financial Times market data. The FTSE is down 11% since the start of the current market crisis (around the middle of February 2020), but it looks as though insurers have been disproportionately affected.
No one can tell for certain what the market thinks, but it may be thinking of the impact on general insurers, which could be bad. Regarding life insurers, hard to tell. Given the disproportionate impact on ‘annuity’ age groups, see our post here, the effect could be to reduce best estimates. On the other hand, given that those liabilities have been ‘improved’ by the application of Matching Adjustment, which assumes that, er, higher yielding bonds are substantially risk free, their asset quality may not be ‘improved’. See e.g. here.
Moody’s has issued a global recession alert should the coronavirus turn into a global pandemic, deemed inevitable by many of the world’s top virologists after exponential outbreaks in Korea, Iran, Italy, and now France. “The economy was already fragile before the outbreak and vulnerable to anything that did not stick to script. COVID-19 is way off script,” said the rating agency.
I love the way-off script idea (my emphasis). What about all that ‘reverse stress testing’ that regulators pushed down everyone’s throats after the last recession? And in what way is a disease that is readily transmissible, has no serious effects on the majority of those infected, but causes immense disruption because of quarantine, an ‘off script’ event? Who’d a thought it.
| Name | Price 2 Mar | Price (pre crisis) | pct |
| Legal & General Group PLC | 252.7 | 313.90 | -19.50% |
| Prudential PLC | 1,259.00 | 1,489.00 | -15.45% |
| Aviva PLC | 347.4 | 404.10 | -14.03% |
| Phoenix Group Holdings PLC | 695.9 | 788.70 | -11.77% |