Natural Catastrophe Claims Cost Insurers More Than Coronavirus in First Half: Fitch

August 26, 2020

COVID-19-related claims were not the biggest driver of the North American property/casualty insurance industry’s overall combined ratio during the first six months of 2020. Natural catastrophes cost insurers more, Fitch Ratings concluded in its latest report.

Pandemic-related claims increased the overall combined ratio by 3.6 percent in H1 2020. That was less than the 3.9 percent combined ratio impact caused by both natural catastrophes and civil unrest over the same period, Fitch said.

Fitch said its base case assumption during its coronavirus review was a pandemic-related 3.5 percent increase in the full-year combined ratio for 2020, or 7 percent for severe stress. Fitch said that this assumption should stick for the full year, barring significant additional reported coronavirus losses for the second half of 2020.

Overall, Fitch said that insurers and reinsurers alike are absorbing coronavirus costs so far without adversely affecting their stability.

“While the coronavirus pandemic created an unprecedented operating environment and heightened volatility across the global economy, midyear 2020 North American P/C [insurer and reinsurers] underwriting results represent an area of relative stability, reflecting the industry’s robust risk management focus,” Christopher Grimes, director, Fitch Ratings, said in prepared remarks.

To be sure, COVID-19, natural catastrophe and civil unrest-related losses were not insignificant.

For North America property/casualty insurers, COVID-19-related incurred losses during H1 2020 reached $6.8 billion. Tornadoes in metro Nashville and other severe storm events generated $7 billion in natural catastrophe losses during the period, a result Fitch called “elevated” from the norm. Over the first six months of 2019, natural catastrophe losses landed at $5.6 billion. Civil unrest-related losses through H1 2020 reached $751 million.

Pandemic Still Painful

Commercial lines writers saw some of the biggest absolute losses related to the coronavirus, adding 4.4 percent to the segment combined ratio. What’s more, that represented 72 percent of overall losses related to the pandemic in the first six months of 2020, Fitch said. For diversified and specialty insurers, their combined ratios grew 4.4 percent and 4.9 percent respectively.

According to Fitch, reinsurers are expected to absorb the largest relative increase in underwriting results from coronavirus-related losses. They booked a combined ratio hike at 9.7 percent of earned premium – the largest segment increase tied to the pandemic. Fitch noted that out of the four companies in the overall group to report coronavirus losses greater than 10 percent of earned premium for H1 2020, three are in the reinsurer segment.

Source: Fitch report, “North American Property/Casualty Insurers’ 2020 Midyear Results.”

Photo: A man looks over buildings destroyed by storms Tuesday, March 3, 2020, in Nashville, Tenn. Tornadoes ripped across Tennessee early Tuesday, shredding buildings and killing multiple people. (AP Photo/Mark Humphrey)

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