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Coronavirus tipped to hurt China’s insurers

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The coronavirus outbreak is likely to weigh on earnings at China’s general and life insurance firms this year, S&P says, although the ratings agency expects eventual mortality claims will be moderate.

But the disease outbreak may also result in a boost for the life insurance sector in the longer term, it says.

China boasts the world's second-largest life insurance market, and S&P says growth potential remains strong, given concerns over human-to-human disease transmission. While new business in the life sector would likely contract during the first half of 2020, S&P says the future remains positive.

“The outbreak could increase insurance awareness in China and may help the longer-term development of the country's life insurance sector,” the agency says. “We anticipate that eventual mortality claims will be moderate given the seemingly low fatality rate of the coronavirus infection.”

The epidemic will strain China's property and casualty (P&C) sector at a time insurance companies are seeing thinning profitability.

“A lower economic outlook and increasing claims may pinch the already shallow pockets of Chinese P&C insurers,” S&P says.

It says overall insurance industry earnings in China will probably be hit by equity market volatility, compounding slower business caused by a fall in face-to-face engagement with customers.

In motor insurance, a slowing economy may lead to higher delinquencies for credit guarantee insurance contracts. The outbreak may limit car sales in early 2020, further dragging on the “already dim” growth prospects for motor insurance, S&P says.

“Demand from business interruption, event cancellation, and liability-related coverage could rise as policyholders seek to insulate themselves against man-made and natural calamities. However, we continue to perceive limited underwriting expertise and technical pricing as broader concerns about insurers' ability to underwrite such coverage.”

Medical costs for future treatments may burden insurers, S&P added.

The capital buffers for S&P-rated insurers would likely remain sufficient at existing rating levels, though the pressure on capital could be more pronounced on smaller insurers without a strong parent group, S&P analyst WenWen Chen said.