Property-Casualty Insurers Face Ongoing Pandemic Loss Uncertainty

US property-casualty insurers will face uncertainty over their ultimate pandemic-related losses in numerous insurance lines for some time to come, according to Fitch Ratings.

While incurred pandemic losses for US property-casualty insurers increased only modestly in the fourth quarter of 2020 from the year's earlier quarterly reported results, the amount of ultimate losses in products including business interruption and general and professional liability will involve extensive litigation and will take several years to determine, Fitch said.

The rating agency said that its rated property-casualty insurers have broadly maintained capital strength over the past year and pandemic-related adverse ratings actions were limited. "However, uncertainty remains regarding the full financial consequences and total insured losses from the pandemic," a Fitch statement said.

Fitch said its US property-casualty sector outlook is improving as it anticipates insurers' 2021 performance will benefit from "substantial increases" in commercial lines premium rates as well as fewer pandemic-related losses. "However, risk of an individual insurer incurring large losses or adverse reserve development relative to capital due to unique or loosely worded coverage terms or adverse litigation outcomes remains a possibility," the Fitch statement said.

A group of 50 North American publicly traded insurers reported more than $9 billion in pandemic-related losses in 2020, Fitch said. Including Lloyds of London and major global insurers and reinsurers, the total is approximately $30 billion.

A significant portion of claims paid thus far are related to event cancellation and travel coverage, the rating agency said, and insurers continue to carry the majority of all losses as incurred but not reported.

Fitch noted that insurers' assertion that physical damage to property is required for a valid business interruption claim has largely been upheld in judicial rulings to date. But a substantial volume of litigation is still unresolved, Fitch said, and class action filings may still emerge in business interruption and other liability coverages.