Coronavirus poses 'limited' financial risk to Chinese insurers: Moody's

Despite soaring coronavirus cases, Chinese insurers are likely to have limited financial impact from the outbreak but disruption risk could be significant, says the latest analysis by Moody's Investors Service.

According to the report, Hubei province in Central China, which is at the epicenter of the outbreak, only accounted for around 4 percent of both life and non-life insurance premiums in 2019.

Insurance penetration in China is traditionally skewed toward the affluent coastal cities, so the impact to the insurance industry will be more significant if the number of infected cases in these cites increases materially.

Chinese insurers’ exposure to such epidemics is also limited because of their product mix. The industry’s premium mix remains dominated by savings-type products, with health insurance accounting for only 22.8 percent of total life premium at the end of 2019.

However, Moody's said that insurers could face a jump in low-severity medical claims, large claims will likely be limited by coverage from China's public medical insurance funds, which the central government has said will cover expenses for infected individuals and suspected cases.

Additionally, some rated insurers have also taken out reinsurance against pandemic risk, that should in most cases cover significant parts of their in-force book.

"The more immediate and significant impact from the coronavirus outbreak on Chinese insurers will stem from the resultant disruption on their broader business, and from the negative impact on investment portfolios due to lingering concerns over a potential further slowdown in the economy," said Frank Yuen, a Moody's vice president and senior analyst.

Outside mainland China, travel restrictions from the mainland to Hong Kong and other countries could choke off cross-border insurance demand, which has been a major growth driver for several pan-Asian and Hong Kong-based insurers. While these business flows were already affected by the fall in mainland Chinese visitors as a result of the social unrest in Hong Kong, current events threaten to delay any potential recovery.

In the longer term, the current outbreak could raise awareness for health insurance, and raise insurance demand in China, said Moody's.

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