As the world continues to wrestle with the COVID-19 outbreak, medical, economic and societal measures designed to limit the spread of COVID-19 have seen mixed results. Infection and fatality rates are no longer growing quite as fast as they were during March and April; however, many states are still grappling with increasing infection rates.
The stock market has rebounded to levels more consistent with the pre-pandemic environment, but unemployment levels remain alarmingly high. States have gradually relaxed restrictions as a way of restoring normalcy. Opinions vary but there is a general concern that a second wave of the virus could hit later this year.
The risk-based capital (RBC) ratio stress test demonstrates the impact that sudden shocks, such as a pandemic, can have on a company’s financial health. These shocks will affect companies in different ways due, in part, to variations in asset and liability mix and risk management strategies. Many companies’ portfolios can withstand the stress to their financials. Others are more susceptible to the pressure. Due to the possibility of another COVID-19 wave (and the continued economic uncertainty that comes with it), companies need to prepare for the resultant impacts. Reinsurance can help strengthen vulnerabilities within company portfolios and provide greater stability in turbulent times.