A COVID-19 second wave could eat into insurers’ capital and increase risks from rising claims, S&P Global says.

So far this year S&P has taken negative rating actions on 9% of its global insurance ratings, compared to 40% of the wider corporate and government ratings universe.

But growth expectations for insurers globally this year have diminished due to the slowdown in economic activity.

“The risk of insurers’ invested assets losing value still outweighs the risk of rising insurance claims, particularly for life insurers and those with thin capital buffers,” Credit Analyst Dennis Sugrue says.

“Nevertheless, a second wave of COVID-19 infections that disrupts the economic recovery or necessitates the widespread reintroduction of lockdown measures could disrupt the financial markets further, deepen the recession, and increase asset losses and insurance claims.”

S&P says losses from business interruption could rise if insurers face legal action, but it views retroactive legislative or regulatory changes as unlikely.

Employee safety concerns may prompt lawsuits, leading to increased Directors’ and Officers’ or Professional Liability claims, while “significant excess mortality” could erode life insurers’ capital position.

The ratings company warns of a rising risk that an extended recession could have implications for longer-term insurance demand, particularly for discretionary lines.

“If the economic recovery were disrupted or long lockdowns returned, insurers’ top lines in 2020 and 2021 would face more significant and longer-term consequences,” it says in the report, which is titled Resilient For Now.