The coronavirus is having a significant impact on economic activity. Countries are implementing necessary quarantines and social distancing practices to contain the pandemic. Consequently, the global economy faces the most severe shock since the Great Depression of the 1930s. The magnitude and duration of the economic impact remain highly uncertain as long as the virus is not contained. This poses a challenge for pension and insurance companies to assess the future economic impact on their investment and solvency risks.

Informing management and the board on the possible financial consequences of this crisis by performing (what-if) scenario analysis is crucial in such a situation. For that purpose, Ortec Finance, in partnership with Cambridge Econometrics have defined four COVID-19 scenarios, including the year-by-year expected impact on economic and financial asset class returns per scenario.

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We have carefully considered the policy responses of key players, such as governments and central banks, on these COVID-19 scenarios, and assessed the country-specific macroeconomic implications. Consequently, we are able to measure the impact on the macro-economy per country (e.g. GDP, inflation, interest rates), which serves as a basis to assess the impact on asset class returns (sovereign bonds, credits, equities, alternatives). This approach combines the strengths of both macro-economic and financial market modeling and expertise. For each of the four COVID-19 scenarios, the impact on economic and asset class returns (deterministic) is ready for use in investment-portfolio simulation models. The COVID-19 scenarios come with thorough documentation on the research, assumptions and narratives per scenario.

How is your investment portfolio or solvency-ratio positioned for a deep economic recession yet with a steady recovery on the short and medium-term (1-5 years)? Pension and insurance companies can use these scenarios to assess the robustness of their investment portfolios and solvency position (e.g. for ORSA) for various COVID-19 scenarios. Get a head start and be fully informed, enabling you to enhance your decision-making process and improve discussions with your stakeholders.

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