"While the coronavirus pandemic created an unprecedented operating environment and heightened volatility across the global economy, midyear 2020 North American P/C (re)insurer underwriting results represent an area of relative stability, reflecting the industry's robust risk management focus," said Christopher Grimes, Director, Fitch Ratings.
While overall losses remain manageable for most insurers, losses from natural catastrophes and civil unrest outpaced claims from coronavirus induced losses. Coronavirus-related incurred losses reported by the group, totalled $6.8 billion. Severe storm events, including tornados that hit the Nashville metro area, led to elevated natural catastrophe losses for the group of $7.0 billion in 1H20, up from $5.6 billion in the prior-year period. Civil unrest-related losses totalled $751 million.
Pandemic-related claims increased the group's overall combined ratio by 3.6% in 1H20, less than the impact of natural catastrophes and civil unrest reported during the period of 3.9%. Fitch's base case assumption during its coronavirus review was a 3.5% increase in the full-year combined ratio (7.0% for severe stress) related to the pandemic. Barring significant additional 2H20 reported coronavirus losses, full-year results for the group will likely remain within these assumptions.
The diversified commercial lines writers reported some of the largest absolute losses related to the coronavirus, adding 4.4% to the segment combined ratio and representing 72% of overall losses related to the pandemic in 1H20. Diversified and speciality companies reported increases of 4.4% and 4.9% of their respective combined ratios, resulting from coronavirus losses, reflecting the wide 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 largest segment increase tied to the pandemic at 9.7% of earned premiums in 1H20. Of the four companies in the overall group to report coronavirus related losses greater than 10% of 1H20 earned premium, three are in the reinsurer segment.
"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," added Grimes.
Insurers endured unprecedented disruption in 1H20 and are demonstrating an ability to adapt to widely changed socio-economic conditions. Operational and underwriting challenges are unlikely to subside in the remainder of the year, and forecasting the pandemic's end is not possible. 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 potential for large catastrophe losses and reported reserve deficiencies in liability lines. Both sectors' rating outlooks remain stable.
Still, reserve development was generally stable and P/C insurers reported strong capital levels at mid-year 2020. Prior-year reserve development was slightly less favorable relative to the prior year, with aggregate reserve releases represented 0.4% of earned premium in 1H20, compared with 0.6 points in 1H19. The commercial specialty subsegment reported the most favorable level of reserve releases relative to earned premium in 1H20 at 3.9%.
As global markets began to recover in 2Q20, the group's shareholders' equity recovered to a 3.7% shortfall relative to
YE 2019, compared with the 10.0% difference in 1Q20 from YE 2019.Following strong 18.7% growth in equity capital in 2019, from significant investment returns and favorable underwriting results, the group's aggregate shareholders' equity remains 14.4% higher at 1H20 versus 18 months prior at YE 2018.
The full report, "North American Property/Casualty Insurers' 2020 Midyear Results," is available at www.fitchratings.com.