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US commercial insurers’ results face COVID-19 claims uncertainty: Fitch

10th July 2020 - Author: Charlie Wood

Benefits for US commercial insurers from recent sharp premium rate improvement are likely to be delayed by effects on underwriting results from COVID-19, according to Fitch Ratings.

Fitch-RatingsThe ratings agency says the sector was poised for 2020 profit improvement following two consecutive years of statutory industry commercial lines combined ratios slightly below 100%.

Fitch says the largest initial effect of the pandemic on property/casualty insurers was tied to unrealised losses on equity investments amid a sudden sharp market decline.

To date, North American publicly traded re/insurers tracked by Fitch have reported an estimated $2.2 billion in pandemic-related losses.

Loss estimates from Lloyds of London and large multinational re/insurers put global reported losses up at $11 billion-$13 billion.

These figures are anticipated to rise substantially with second-quarter earnings results and over subsequent quarters but still represent more of an earnings event rather than sharply reducing capital adequacy.

Specialised segments such as travel accident, trade credit and trip and event cancellation have seen significant initial reported claims losses.

Fitch says pandemic-related incurred losses may prove substantial in a number of other segments, including business interruption, workers compensation and professional liability lines.

The magnitude of losses will supposedly depend on the event’s severity and duration, as well as regulatory, legislative and judicial outcomes.

Fitch notes that claims cost and economic uncertainty have contributed to further acceleration of commercial premium rate increases in 2020.

Prices in 1Q20 increased at the highest pace since 1Q03, according to The Council of Insurance Agents & Brokers’ latest commercial lines market survey.

Prices have moved higher in liability segments with larger 2019 calendar year underwriting losses, including: other liability (105% 2019 CR), commercial auto (109%) and medical professional liability (112%).

Workers’ compensation is the only major segment reporting material reductions in premium rates but also remains the most profitable (88% 2019 CR).

Offsetting positive pricing trends, However, are sharp recent declines in key underwriting exposures  that will reduce premium volume, with the magnitude of the decline in 2021 dependent on the timing and strength of the economic recovery.

Fitch maintains a stable ratings outlook on the U.S. P/C insurance industry and the commercial lines sector, based largely on capital strength that allows insurers to withstand performance volatility from adverse events.

However, the near-term fundamental sector outlook was changed to negative in March given the uncertainty to underwriting and investment performance tied to the economic fallout from the coronavirus pandemic.

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