According to rating agency AM Best, the impact of COVID-19 on insurers’ balance sheets and operating performance has been stable, despite the ongoing uncertainty surrounding the COVID-19 pandemic from both economic and regulatory perspectives.
Insurers’ top lines were impacted early in the pandemic, but premium levels are returning to pre-pandemic levels, as businesses have reopened in the second half of this year.
AM Best believes the segment’s solid level of risk-adjusted capitalisation will withstand the effects of the pandemic. The segment remains in a redundant loss position, although the redundancy is diminishing.
The segment also continues to report favourable combined ratios driven by consistent loss ratios. Underwriting results have deteriorated only slightly, benefiting from lesser fraud, fewer workplace accidents, and lower defence costs.
There are however, offsetting factors which AM Best will continue to monitor for longer term implications. The segment remains anxious as states continue rate decreases, with this compression pressuring the direct loss ratio.
Although the line has benefitted in recent years due to a decline in lost-time claims frequency and active improvement in workplace safety, the possibility of claims latency and the potential long-term health effects of the virus remain a concern, along with regulatory and legislative actions that could affect the ultimate cost of certain claims.
Furthermore, intensifying market competition may lead to a lack of underwriting discipline.
Although investment income continues to be tested by the persistently low interest rate environment, companies have benefitted from recent equity market gains.
