Insurers are still faced with balancing consumer expectations and financial stability. In the early spring, they also struggled with reductions in premium income, as sales of new policies and premium payments declined. One participant noted, “Many global insurers are allowing customers to defer paying their premiums for 60 to 90 days without penalty. This will be a major issue for insurance companies going forward.”
Many insurers expect continued declines in new sales revenue for the next year or so. An executive said, “By and large, new business has fallen off the table and will be incredibly lower this year.”
In light of financial uncertainty and market volatility, a number of insurers modified or suspended dividend payments and share repurchase programs, partly as a result of pressure from European regulators. Some participants suggested that these decisions would be driven by reputational concerns as much as effective capital management. One director noted that many shareholders would suffer financially if companies withheld dividends this year: “A lot of older shareholders rely on those dividends as their yearly income. If a company’s revenue is not vastly impaired by this crisis, then it is unfair to suggest that those relying on dividends should not be paid.” Participants also said that public pressure to suspend share repurchases may be even stronger than pressure on dividend payments: “It’s a matter of optics, and in some cases, public policy.”
Navigating longer-term economic headwinds
The International Monetary Fund estimated in June that the global gross domestic product will contract by 4.9% in 2020.1 While global growth in 2021 is projected at 5.4%, this is still 6.5 percentage points lower than pre-pandemic estimates.2
IGLN participants foresee a long, slow recovery from the crisis as the economy confronts low consumer confidence and a slow rebound in demand. Most agree that low interest rates will persist for the foreseeable future and acknowledge that this may cause a shift in investment strategies for insurers.
By early summer, equity markets had largely recovered from their initial COVID-19-driven slump. With dismal unemployment figures, and a record number of new coronavirus cases in the US, the stock market near an all-time high represents a “huge disconnect” from reality. One participant noted some particularly difficult situations could emerge over the next two to three years.
The pandemic also presented other challenges for insurers, forcing them to grapple with exposures correlated across multiple business lines. They did not anticipate the accumulations stemming from COVID-19 and, as a result, they may look to reverse stress tests when planning for future crises.