For US property and casualty insurers, Moody’s analysts expect the economic shock from coronavirus to cause a decline in premiums, higher claim costs in certain business lines, lower claim frequencies in others, more volatile investment results, and a deterioration in capital.
For claim costs, the coronavirus is expected to have mixed effects, with lower frequencies for personal and commercial auto but higher claims for healthcare workers’ compensation.
However, Moody’s says insurers can weather the downturn based on strong starting capital and liquidity.
“Any downside economic scenario related to the coronavirus could be exacerbated by one or more severe catastrophes or persistent loss cost inflation in excess of P&C pricing trends,” said Moody’s Vice President Bruce Ballentine.
In commercial lines, premiums are often based on percentages of business metrics such as revenues, payrolls and miles driven, all of which will decline.
The pandemic will have mixed effects on P&C claims, causing higher losses in such lines as workers’ compensation for healthcare workers, and lower claim frequencies in such lines as personal and commercial auto.
P&C insurers maintain high-quality, liquid investment portfolios and they produce healthy cash flows, which will help them withstand coronavirus-related volatility in the stock and bond markets.
Analysts state that P&C companies generated strong earnings and capital growth in 2019 based on moderate improvement in underwriting results and favorable swings in realized and unrealized investment gains, although the market turmoil of recent weeks has reversed those gains.
Moody’s expects that insurers will limit discretionary spending and share buybacks in the months ahead to protect their credit profiles.