North American property/casualty insurers will likely face increasing coronavirus-related financial challenges as the pandemic crisis drags on, Fitch Ratings said in a new report.
“Claims experience relating to coronavirus and related economic disruption is not anticipated to significantly increase loss ratios in the near term, but as the duration and severity of the crisis lengthens, uncertainty regarding future sources of underwriting losses expands,” Jim Auden, managing director at Fitch Ratings, said in prepared remarks.
Fitch said it expects significant claims in specialty segments such as event cancellation and accident & health lines. As well, the ratings agency warned the industry about looming legal challenges to contract terms excluding pandemics and requiring physical damage for business interruption claims. Fitch added it expects liability claims in other lines relating to coronavirus but said the level of those losses will be harder to predict until the crisis subsides.
Fitch’s warning comes even as the rating outlook for the U.S. property/casualty insurance and the global reinsurance sectors remains stable. Fitch noted, however, that it revised its outlook for the underlying fundamentals of the P/C insurance sector to negative from stable (sector outlook) on March 20. This change, it said, stems from increased concerns over COVID-19, the disease caused by the coronavirus, and related impacts on near-term performance and the credit quality of insurers.
2019: Good Times
The coronavirus crisis comes as P/C insurers came off of a generally successful 2019. Fitch pointed out that operating performance for the sector saw moderate improvement in 2019, based on its tracking of 47 P/C insurers. Both calendar-year combined ratio and somewhat higher investment income helped drive those results.
As well, insurers have seen benefits from rate hikes in much of their commercial lines, Fitch said.
Those gains could face some real challenges in the months ahead, according to Fitch, as the U.S. economy and financial services sector deal with unprecedented challenges relating to the coronavirus pandemic.
“Looking ahead, the global coronavirus pandemic adds tremendous uncertainty to the U.S. economy and financial services sector,” Fitch said. “A move toward an economic recession could alter premium growth trends through declines in insured exposures or renewed competitive pressure that restricts pricing momentum.”
The full report is “North American Property/Casualty Insurers’ 2019 Results.”
Source: Fitch Ratings