Insured Pandemic Losses ‘Manageable’ as Earnings’ Event, Not a Capital Event

August 28, 2020

While COVID-19 losses are large and significant for the insurance sector, they are an earnings’ event, rather than a capital event, according to report issued by Hyperion X, the data and analytics division of Hyperion Insurance Group.

In its second quarter 2020 insurance sector earnings update, Hyperion X said this confirms its early view that pandemic losses would be manageable.

“COVID insured losses are significant and will likely add up to one of the largest insured loss events in history. This being the case, we can now say with increasing confidence what we have said from the beginning: these losses are manageable and are affecting earnings, not solvency,” said David Flandro, managing director, Analytics, Hyperion X.

Key findings in the update are highlighted below:

  • First half COVID loss estimates appear reasonable; under current assumptions, there is no impact on sector capital in aggregate,
  • Uncertainty around loss litigation combined with the possibility of a second wave is adding to existing, upward pricing pressure,
  • Improved year-on-year underwriting results offset by lower investment returns drove diminished (but still positive) net income in the first half of 2020,
  • Property-casualty rate increases are accelerating in most commercial and reinsurance lines,
  • Composite forward return on equity estimates are marginally (but not dramatically) lower in 2020, rebounding in 2021,
  • Reserve releases, although modest, re-emerged in the first half, offsetting higher accident year losses compared with half year 2019,
  • Most capital raising has been opportunistic in an environment of rising rates with USD 16 billion of new capital raised in the first half of 2020, a US$10 billion year-on-year increase.

“Perhaps the most significant developments emanating from COVID has been the fundamental changes in how the market assesses, intermediates, and underwrites risk, all of which can benefit clients,” said Flandro.

“Innovation has accelerated during the COVID crisis,” he affirmed. “It has driven new product design, expedited the creation and leveraging of better data, and accelerated the move to digital trading.”

Flandro said insurance companies are differentiating their offering by using technology to improve underwriting results and to lower administrative costs.

“Hyperion is actively using technology to eliminate legacy intermediation thereby lowering acquisition costs for clients and markets. All of this will ultimately be positive for the end consumer,” he added.

A video with commentary from Flandro and presentation slides is available on Hyperion X’s LinkedIn site.

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