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US commercial insurer capital will cover COVID-19 uncertainty, says Fitch

22nd June 2020 - Author: Charlie Wood

A new report from Fitch Ratings states that commercial line insurers’ longer-term stability in financial performance and capital strength suggests an ability to withstand stress from adverse events, including catastrophes, adverse reserve development and asset market volatility.

Fitch-RatingsFitch Ratings’ managing director James Auden notes how commercial insurers continue to benefit from a favorable pricing environment and rates are rising for nearly all segments except workers’ compensation and that a positive pricing momentum should, “mitigate in underwriting losses for several segments including commercial auto.”

While projecting 2020 commercial lines underwriting results is exceedingly difficult in a rapidly evolving public health and economic environment, Fitch says the industry combined ratio is likely to move above 100%.

In 2019, the US commercial lines sector posted a break-even underwriting result for the second consecutive year with a combined ratio of 99.7%.

Direct written premiums increased by 6.6% for the year versus 5.6% in 2018.

In addition, highly profitable results in workers’ compensation and commercial property lines were offset by larger underwriting losses in several liability segments.

Fitch does not expect commercial lines’ 2020 performance to improve given new losses generated by the ongoing coronavirus pandemic.

“The onset of the coronavirus pandemic and consequent economic disruption adds uncertainty to near-term incurred losses and premium revenues in several commercial lines segments,” Auden added.

“Losses in areas including business interruption, workers’ compensation and professional liability will take time to unfold and hinge on the ultimate severity and duration of the pandemic as well as regulatory, legislative and judicial outcomes.”

Fitch maintains a Stable Rating Outlook on the U.S. P/C insurance industry, including the commercial lines sector.

The near-term fundamental sector outlook was changed to negative in March 2020 on looming uncertainty to underwriting and investment performance tied to the coronavirus pandemic.

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