2020 U.S. election: How a pandemic plan south of the border can help cure Canadian P&C insurers’ results

As the United States nears election day, Canadian P&C insurers and other financial analysts are trying to read the tea leaves for signs of a crisis mitigation strategy south of the border that would address the COVID-19 pandemic and its negative impact on the economy.

Because without a plan to tackle the issues, the economy there will continue to suffer, resulting in ongoing low interest rates that are hurting the profitability of the insurance industry. When investment rates are too low, premium rate increases remain the most obvious tool to offset the loss of investment income.

And when the U.S. suffers economically, Canada feels the effects. “As the old pre-COVID saying goes, ‘When the U.S. sneezes, we get a cold,’” said Joel Baker, CEO of MSA Research.

That’s why experts on the Canadian side of the border are keeping an eye on developments as the American election nears. Observers like Baker are worried about the uncertainty that clouds the future.

When asked by Canadian Underwriter what he was watching for between now and Nov. 3., Baker said: “Volatility in the U.S. If the outcome of the election is uncertain/disputed, or if the lead up to the election is accompanied by violence/disarray, that would cause market turmoil in the U.S. and, of course, in Canada.”

Everything hinges on the COVID-19 pandemic and government response to it, explained Francis Fong, chief economist at the Chartered Professional Accountants of Canada, the national body for the accounting industry. It’s not so much that people are looking for a strategy to right the country’s economic situation, Fong told Canadian Underwriter. Rather, they are looking for a roadmap on how the U.S. plans to tackle COVID-19.

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“At the end of the day, what is at the crux of all that? of why equities haven’t really recovered? of why central banks are so pessimistic? of why recovery is slowing?” Fong asked rhetorically. “All of it is still kind of boiling down to the evolution of the pandemic. And that’s the unfortunate part: Where the pandemic goes, economies and financials will follow.”

Baker agreed. “We need the U.S. to get a handle on the pandemic. As long as the pandemic remains out of control in the U.S., or here, it will be impossible to get the economies fully back on track.”

Even if Canada went back into full-scale draconian lockdowns to eradicate the virus, and even if it was able to re-open everything in a return to life as it was pre-pandemic, “we still can’t control what’s happening south of our border,” Fong said.

It would also help the Canadian economy if the borders were allowed to safely re-open on a wider scale. But that’s “hard to do when COVID-19 is raging,” Baker said.

So, expect interest rates at levels near zero to remain for some time, Baker added, offering little relief to insurance companies.

And even with the potential for the U.S. election to improve the situation, and perhaps even point the way towards optimism, there’s little reason to get excited about the U.S. economy as a whole, Fong observed.

“I’m not overly optimistic that there’s going to be a serious resolution coming out of this election, at least on the on the pandemic front, regardless of who gets elected,” he said. He went on to explain that despite what the U.S. federal government may direct, individual states can do as they please in terms of issuing lockdown orders or other widespread mandates. So there may not be a unified movement towards change.

What markets need is a light at the end of the tunnel, Fong added. Preferably this would take the form of some sort of plan to address the pandemic. “If we can’t give financial markets that light, we’re going to be stuck in this perpetual state of equity markets that are not really moving anywhere, interest rates that are at rock-bottom levels, and elevated uncertainty across the board,” he said. “I think that’s just a fact of the matter.”

After Nov. 3, financial experts may look to the equity markets to see how investors perceive the election outcome. “I think that will send a very strong signal as to whether or not they believe that particular candidate has a platform to actually get the economy moving again,” Fong said.

That plan would include how to prevent businesses from going under as the pandemic is resolved. “And of course: How do we resolve this pandemic? I think we’re all just kind of sitting on our thumbs waiting for a plan. That’s it,” Fong said.

Feature image: President Donald Trump and Democratic presidential candidate former Vice President Joe Biden participate in the first presidential debate Tuesday, Sept. 29, 2020, at Case Western University and Cleveland Clinic, in Cleveland. (Olivier Douliery/Pool vi AP)