U.S. insurer The Hartford expects to incur losses related to COVID-19 of $251 million pre-tax ($198 million after-tax) in the second-quarter of 2020, as well as current accident year catastrophe losses of $248 million pre-tax ($196 million after-tax).
Combined, pre-tax losses from COVID-19 and current accident year catastrophes are estimated at $499 million for the company.
Within The Hartford’s P&C operation in Q2, COVID-19 incurred losses totalled $213 million pre-tax, and is largely comprised of reserves for business interruption claims on property policies, workers’ comp net of favourable frequency, and financial lines.
“Reserves for business interruption claims pertain to those policies in middle and large commercial and in global specialty that do not require direct physical loss or damage,” explains The Hartford.
COVID-19 related property losses also include reserves for estimated legal costs to defend lawsuits for business interruption claims where the contract does require direct physical loss or damage to trigger coverage.
Regarding COVID-19 related workers’ comp losses, The Hartford explains that this includes an estimate for presumptive losses, “relating to states that have passed laws or issued executive orders or agency rules providing for the presumption of coverage for certain industry classes, including health care and other essential workers.”
Additionally, The Hartford expects to incur COVID-19 losses in Group Benefits of $30 million pre-tax, mostly related to group life claims.
The Hartford also plans to raise its allowance for credit losses on premiums receivable by $44 million pre-tax, in light of higher expected uncollectible receivables due to the pandemic’s impact on the economy. Furthermore, in Q2 2020, The Hartford says that it expects to lower its estimate of audit premiums due from business customers by $100 million, principally on workers’ comp policies as a result of lower estimated payrolls.
On top of the COVID-19 hit, The Hartford has announced estimated current accident year catastrophe losses of $248 million pre-tax in Q2, which includes $138 million pre-tax for wind and hail events and also, $110 million pre-tax related to civil unrest in the U.S.
When compared with Q2 2019’s current accident year catastrophe losses of $90 million pre-tax, the wind and hail events that occurred in Q2 2020 were more than enough to see the firm report a year-on-year increase in losses. However, add a global pandemic and civil unrest across much of the U.S., and The Hartford’s loss bill has almost reached $500 million for the second-quarter of 2020.
But despite the outsized loss experience, The Hartford has revealed that it expects to report net income of $463 million in Q2 2020, which is up on the $372 million reported in the same period last year, although that period did include reinsurance and reserve charges related to the acquisition of The Navigators.
In part, The Hartford’s improved Q2 net income is down to net favourable reserve development of $268 million pre-tax, including a $400 million pre-tax reduction in reserves for prior year cats. The Hartford explains that this favourable reserve development includes a $102 million pre-tax increase in reserves for sexual molestation and abuse claims.
Furthermore, the favourable catastrophe reserve development includes a reduction in estimated losses from a number of wind and hail events in 2018 and 2019 and from 2017 and 2018 wildfires, and also includes recognising a subrogation recoverable from PG&E of $289 million pre-tax.
It was announced at the start of July that PG&E had paid an $11 billion settlement to resolve all insurance subrogation claims arising from the 2017 Northern California wildfires and the 2018 Camp Fire.
In addition, the company explains that its estimate of net prior accident year development also includes reserves of $54 million pre-tax, on legacy Navigators reserves for the 2018 and prior accident years, which is ceded to National Indemnity under an adverse development cover.
Net investment income is expected to reach $339 million pre-tax in the second-quarter of 2020, mainly driven by an estimated $71 million pre-tax loss on limited partnerships and other alternative investments.
The subrogation recoverable from PG&E appears to have come at a useful time for The Hartford, helping the firm to partially offset the unprecedented impacts of the COVID-19 pandemic, higher cat losses and claims related to civil unrest in the U.S.