For US Property and Casualty Insurers, COVID-19's Impact Remains Uncertain

The COVID-19 pandemic's impact on insurers' financial statements will likely be more pronounced in the second quarter than it was in first-quarter results, according to S&P Global Ratings.

The infection rate and deaths related to COVID-19 grew significantly in the second quarter, S&P noted, and business shutdowns were also more pronounced.

"For US [property and casualty (P&C)] insurers, we expect to see a high degree of variability in underwriting results as elevated catastrophes, civil unrest, and initial COVID 19-related loss estimates hit firms' bottom lines," S&P said in a recent report. "Offsetting these adverse operating developments are unrealized gains and investment income stemming from the recent market rebound of first-quarter losses."

The rating agency noted that despite the greater spread of the virus during the second quarter, equity markets rebounded almost 25 percent, a significant departure from the 20 percent decline in the first quarter. Market volatility also seemed relatively lower during the second quarter, S&P said.

But, while P&C insurers' investments have rebounded, S&P said uncertainty around COVID-19-related losses remained high in the second quarter.

"We anticipate a high degree of variability in underwriting results in the second quarter as insurers begin to post losses stemming from the pandemic," S&P said. "While we expect insurers to face tailwinds from a positive rate environment and lower frequencies for certain lines of business given shelter in place restrictions, the types of businesses and geographies an insurer writes can result in a wide range of initial estimates of COVID 19-related losses."

Elevated catastrophe losses, continued social inflation pressures, and uncertainty around COVID-19 losses and civil unrest "lead to a wide range of possible outcomes," for US P&C insurers, S&P said. Insurers with large books of property business will likely experience a modest uptick in losses due to convective storm activity, while litigation costs continue to rise due to social inflation.

"We expect losses stemming from COVID-19 to be a major factor for the rest of the year, subject to significant changes as more information becomes available and companies refine loss estimates," the rating agency said. "While furloughs and fiscal stimulus allowed some small businesses to weather the storm during shelter-in-place restrictions, now as certain payments come due, some of these temporary closures and layoffs could become permanent, which will be a direct hit to premium volumes."

For the full year, S&P anticipates US P&C insurers' written premiums declining 4 percent to 6 percent, with losses of 98 percent to 102 percent.