With industry losses forecast to ultimately reach $100 billion, JP Morgan reports that exposure to the COVID-19 pandemic remains top of the mind for property and casualty (P&C) re/insurers.
Overall, analysts expect small cap underwriters and brokers to be better insulated from virus headwinds versus their larger counterparts due to their niche product focus, nimble operating platforms and technology capabilities.
Most industry observers continue to view the crisis as an earnings event and not one that could ultimately jeopardize capital adequacy with the biggest impact being on investment returns as low interest rates are likely for the foreseeable future.
That said, JP Morgan believes estimates could ultimately prove conservative if governments feel compelled to extend self-quarantining measures or the global economy contracts more than currently expected.
The firm expects direct claims from the virus for P&C insurers to be manageable and mostly affect policies such as business interruption, event cancellation, general liability, and D&O lines.
Among these, business interruption claims are the most difficult to quantify and are likely to depend on the outcome of litigation activity.
A slowdown in the overall economy should also reduce demand for insurance policies and subsequently impact industry premium growth, although virus lockdown measures could reduce claims in some areas.
Recently, several notable underwriters preannounced COVID-19 losses for Q2, with Chubb putting costs at $1.4 billion.
The company noted that roughly 71% of COVID-19-related loss estimates were allocated to its North America Commercial P&C Insurance segment and the remainder to its Overseas General Insurance segment.
Conversely, underwriters such as Travelers, Arch, Cincinnati Financial and The Hanover preannounced COVID-19-related claims with varying degrees of impact on 2Q operating results.
However, the general view from JP Morgan is that COVID-19-related claims will only impact earnings in the near-term and will not pose a longer term threat to capital adequacy.
