Adding 4.4% to the segment combined ratio, diversified commercial lines writers accounted for 72% of overall losses related to the pandemic in 1H20. (Photo: Shutterstock)
The latest mid-year report from Fitch Ratings shows operating performance for North American property & casualty insurers declined in the first half of 2020, with the ongoing coronavirus pandemic affecting underwriting results and investment earnings.
Annualized Generally Accepted Accounting Principles (GAAP) operating ROAE declined to 2.8% in the first half of the year, down from 8.3% in 2019.
Group P&C insurers reported manageable losses from the coronavirus in the period, though considerable uncertainty remains regarding ultimate losses, said Fitch.
"While the coronavirus pandemic created an unprecedented operating environment and heightened volatility across the global economy, mid-year 2020 North American P&C (re)insurer underwriting results represent an area of relative stability, reflecting the industry's robust risk management focus," Christopher Grimes, director at Fitch Ratings, said in a statement.
While overall losses remain manageable for most insurers, losses from natural catastrophes and civil unrest outpaced claims from coronavirus-induced damages.
CAT losses and civil unrest claims top coronavirus losses
Coronavirus-related incurred losses reported by the group totaled $6.8 billion. Severe storm events, including tornados that hit the Nashville metro area, led to elevated natural catastrophe losses for the group, totaling $7.0 billion in first-half 2020 (1H2020), a $1.4 billion increase from the prior-year period. Civil unrest-related losses totaled $751 million, Fitch reported.
Fitch found that pandemic-related claims increased the group's overall combined ratio by 3.6% in 1H2020. This was a decrease from last year's period in which reported claims from natural catastrophes and civil unrest increased the group's overall combined ratio by 3.9%.
Looking at 2020 in its entirety, Fitch's base case assumption during its coronavirus review concluded a 3.5% increase in the full-year combined ratio (7.0% for severe stress) related to the pandemic. Barring significant additional coronavirus losses in the second half of 2020, Fitch said full-year results for the P&C group will likely remain within these projections.
Commercial lines losses in 1H2020
The diversified commercial lines writers reported some of the largest absolute losses related to the coronavirus, Fitch found. Adding 4.4% to the segment combined ratio, this group accounted for 72% of overall losses related to the pandemic in 1H20.
Diversified and specialty companies reported increases of 4.4% and 4.9% of their respective combined ratios due to coronavirus losses, reflecting the variety of products that were affected by the event.
Reinsurers are expected to absorb the largest relative increase in underwriting results from coronavirus-related losses, reporting by far the most significant segment increase tied to the pandemic at 9.7% of earned premiums, Fitch concluded.
"While commercial (re)insurers reported the highest pandemic related losses, personal lines insurers benefited from a precipitous drop off in claims trends in the auto line that materially boosted underwriting results," Grimes added.
Fitch's fundamental sector outlook for U.S. P&C insurers and global reinsurers remains negative as full-year results will likely include further pandemic-related claims, as well as the potential for large catastrophe losses and reported reserve deficiencies in liability lines. Both sectors' rating outlooks remain stable.
The full report can be found on Fitch Rating's website.
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