Pandemic, Catastrophes Pose Risk to Insurers' Second-Half Results

The COVID-19 pandemic will continue to have an impact on US property-casualty insurers' results in the second half of 2020, though pandemic-related losses and other impacts will likely be outweighed by catastrophe losses, according to Fitch Ratings.

Beyond insured losses, the pandemic will continue to adversely affect US property-casualty insurers through premium volume declines amid the economic recovery, according to Fitch, though emerging hurricane and wildfire losses will likely have a greater impact on second-half results than the pandemic.

Fitch said its stable rating outlook for the US property-casualty sector "is largely based on the industry and rated insurers' capital strength to withstand losses from adverse events, which is anticipated to limit the number of negative rating actions in the near term."

The rating agency suggested that US property-casualty insurers' full-year combined ratio will likely move toward 100 percent from 98 percent at midyear due to further recognition of pandemic-related losses in casualty segments. Meanwhile, third-quarter California wildfires and Hurricanes Laura and Sally could generate combined insured losses of more than $20 billion.

Fitch noted that during the first half of 2020 the largest initial effect of the pandemic on US property-casualty insurers was losses on equity investments due to the market sell-off. Now, however, the pandemic has introduced considerable near-term uncertainty for insurers' underwriting performance that is likely to continue into 2021, the rating agency said.

The industry's first-half loss ratio declined by 1.4 points, despite substantial pandemic-related losses due to rising premium rates in the broader commercial lines sector, as well as reductions in economic and social activity that boosted underwriting performance in personal auto insurance due to sharp declines in claims frequency as policyholders were driving less due to the pandemic, Fitch said.

The first-half direct loss ratio in private passenger auto insurance is now moving toward more normal levels, Fitch said.

"Several commercial lines segments reported material direct loss ratio increases, particularly commercial property products (fire, allied lines, inland marine), which incurred pandemic-related business interruption and event cancellation losses that led to a 15-point period-to-period loss ratio increase" during the first half of 2020, Fitch said.