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Commercial Market Hardens but Pandemic To Delay Insurer Profitability

Numbers and statistics with a pair of glasses sitting on top of them
May 14, 2020

The COVID-19 pandemic will hit commercial insurers hard, and most may only return to technical profitability in the second half of 2021, assuming normal levels of catastrophe losses, according to Fitch Ratings.

In a statement, the rating agency said, "Although prices have risen for nine consecutive quarters due to a peak in losses and accelerating claims inflation, Fitch expects that commercial insurers will be hit hard by the effects of the coronavirus pandemic."

In a separate statement, Fitch said it expects continued rate hardening in the commercial insurance market. "Non-life commercial insurance providers have reported double-digit price increases for a variety of lines of business across all major global regions for 2019," Fitch said.

Insurer losses from the pandemic will include those related to event cancellation as well as credit and surety policies until the end of the first half of 2021, Fitch said. Fitch noted that the commercial insurance industry is also under growing political pressure to pay business interruption claims, regardless of whether the policies in question cover pandemics or not.

The commercial insurance business remains "highly contested," Fitch said, and the fragmented large corporates segment of the industry is characterized by a lack of pricing power. Barriers to entry are low, and new capital can enter the market quickly using brokers, the rating agency said. "Cyber risk cover, one of the few lines of business that offers above-average growth at good margins, is sold by an increasing number of commercial insurers," Fitch noted.

Fitch said it believes new capacity will start re-entering the market once the industry's combined ratio improves to 94 to 96 percent. "This is, however, unlikely to happen over the next 2 to 3 years, as the pandemic-related losses need to be recovered from first," Fitch said.

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