Solvency II  

How has Covid-19 affected insurer solvency?

This article is part of
Guide to the evolution of underwriting

Willem Loots, senior director, insurance at Fitch Ratings, says: “The Solvency II regime helped UK insurers weather debt and equity market volatility during the onset of the pandemic. 

This provided the first macro field test of the regime, and insurers were largely able to maintain adequate short-term liquidity and capital ratios in excess of risk-appetite, while avoiding pro-cyclical behaviour, such as selling securities at depressed prices.”

Some underwriting tightening for the more serious protection risks has helped. For example, Aegon is not offering cover for new risks where people have combinations of significant problems like obesity, diabetes or old age.

Simon Jacobs, underwriting and claims director at Aegon, says: “Our knowledge as underwriters evolves over decades but Covid-19 is a brand-new condition, and a year ago we had no idea just how hard it would hit us. 

So, we needed to take action to ensure the business remained viable long-term and was not disposed to disproportionate numbers of claims. This probably affected no more than 5 per cent of our book.        

Alan Knowles, managing director of specialist protection intermediary Cura Insurance, feels that the proportion of policies affected by the underwriting tightening is actually much higher than the 5 per cent commonly volunteered by insurers.      

He says: “They are only including people who apply for cover and not the many with health problems who are turned away at the pre-application stage. 

“But insurers haven’t increased standard prices or imposed many exclusions, although a few income protection providers offering very short deferred periods have put on Covid-19 exclusions.”

Protection claims

It is clear that life claims have increased significantly but most statistics only refer to the first half of 2020. 

According to the Association of British Insurers (ABI), UK insurers received about 7,000 Covid-19 life claims between 1 March 31 and May last year, paying out £90 million. 

Yet there has so far been no spike in income protection claims, and critical illness claims have actually fallen, probably because lockdown has seen less screenings and GP visits. 

Peter Hamilton, head of market engagement at Zurich, says: “Our profits have been dented by payouts but our solvency has not been affected. 

“There could be a backlash next year with more critical illness claims from delayed diagnoses and, because more advanced cancers are much harder to treat, this could increase life claims as well. 

But, on the flipside, Covid-19 has accelerated deaths that would have been future claims.    

“Increased mental health claims and Long Covid could also boost income protection claims further down the line. We are still learning a lot about Long Covid, which can affect various organs in the body and leave people unable to work. But I’m very confident none of this will affect our solvency.”