Insurers and reinsurers will face “unique challenges” during the upcoming hurricane season, according to Fitch Ratings, with the ongoing COVID-19 pandemic set to test many companies.
NOAA data shows that 2020 is already forecast to be above average in terms of hurricane activity, and analysts fear that a major event could put additional pressure on re/insurers already under strain due to the pandemic.
“In the event of a major hurricane landfall in 2020, property insurers’ claims assessment and settlement expertise will be tested by reductions in economic activity and mobility resulting from public policy efforts to combat the pandemic,” said Christopher Grimes, director, Fitch Ratings.
“Typical disaster response practices to prevent injuries and losses from an oncoming storm, including evacuation and mass sheltering plans will need to be re-evaluated in light of public health concerns.”
The analysis reflects comments already put forward by catastrophe modeller Karen Clark & Company (KCC), which warned that both losses and loss adjustment expenses from hurricanes will increase this year as a result of the challenges and disruption being caused by the COVID-19 pandemic.
Similarly, data and analytics specialist GlobalData has said that re/insurers facing high COVID-19 based payouts will be hit harder by catastrophe claims in the year.
Fitch currently maintains a negative sector outlook on the P&C and global reinsurance sectors, reflecting coronavirus uncertainty and near-term market conditions and profitability challenges.
The rating agency also said last week that the industry is unlikely to earn its cost of capital this year due to the challenges of the pandemic.
However, analysts believe industry capital strength remains very strong, meaning most individual re/insurers should have the ability to absorb large near-term losses.
Grimes continued: “The coronavirus pandemic creates unique challenges for the (re)insurance industry during the 2020 hurricane season, but the industry remains well positioned to absorb the risk of an above-average season.”
Additionally, Fitch noted that pricing remains favourable on US hurricane-exposed primary property business, reflecting heightened loss activity in recent years.
And in the reinsurance market in particular, pricing has experienced considerable firming at the midyear 2020 reinsurance renewals, reflecting heightened risk in the region, recent adverse loss experience and reductions in available capacity on offer.
