Chubb’s new, sobering disclosure of Q2 2020 global net catastrophe losses underscores the damage COVID-19 is doing to carriers’ bottom lines.
The global property/casualty insurer reported a whopping $1.8 billion of estimated pretax catastrophe losses for Q2, or $1.5 billion after tax. Of that number, close to $1.4 billion in pretax catastrophe losses stem from the coronavirus pandemic, or $1.15 billion after tax. Losses from severe U.S. weather events and U.S. civil unrest constitute the difference, Chubb said.
Chubb released its Q2 catastrophe loss estimates on July 6 after the markets closed.
Coronavirus losses could be an issue for some time, Chubb Chairman and CEO Evan Greenberg suggested during his comments about 2020 first-quarter earnings earlier this year.
“In this case the degree of revenue impact is simply unknowable,” Greenberg said at the time.
According to the insurer, its pretax loss estimate includes $605 million in short-tail losses generated primarily from entertainment and commercial property-related business interruption and accident and health (A&H) products including travel insurance products, and $553 million in losses related to liability insurance products, including professional liability (directors and officers, employment practices, professional liability, etc.) and workers compensation and other liability-related products.
The estimate also includes $107 million stemming from insurance credit exposures including surety, political risk and trade credit.
Substantially, all of the losses for liability and credit-related insurance products are classified as incurred but not reported (IBNR) reserves, Chubb said. The loss estimate also includes a $100 million IBNR provision to account for the additional uncertainty in the estimates around the company’s property, casualty and credit-related exposures, given this unprecedented event.
Chubb noted that the COVID-19 estimate does not include a credit for potentially lower current accident-year losses from a decrease in exposures, except for a modest benefit for certain casualty claims-made classes. Approximately 71 percent of the COVID-19 estimate relates to the company’s North America Commercial P/C Insurance segment and 28 percent covers the Overseas General Insurance segment.
Chubb added that these catastrophe loss estimates are net of reinsurance, include reinstatement premiums, and comprise losses generated from the company’s commercial and personal property and casualty, A&H and life insurance businesses, and its reinsurance operations globally.
In addition to the COVID-19 loss estimate, the company will reduce its net written premiums in the second quarter by approximately $184 million to reflect its estimate of the exposure adjustments on its in-force policies that have and will result from the impact of economic contraction.
Other Unfavorable Cost Developments
Separately, as part of its second-quarter review of legacy exposures for molestation, the company expects to recognize unfavorable prior period development for U.S. child molestation including reviver statute-related claims of $259 million pretax, or $205 million after tax. The reserve development represents the company’s best estimate of ultimate loss based on current information.
Chubb plans to disclose its 2020 second-quarter earnings on July 28, and the company’s analyst call to discuss results will be a day later.