US Property-Casualty Insurers Facing Post-Pandemic Challenges, Fitch Says

Blue COVID19 key on a black computer keyboard

November 09, 2020

Blue COVID19 key on a black computer keyboard

US property-casualty insurers will continue to face new operational and risk management challenges from pandemic-related insurance losses and premium volume declines in 2021, according to Fitch Ratings.

Insurers able to manage the challenges of workforce flexibility, limit risk aggregations, and reduce claims exposures through disclosure and exclusionary language and clarity of policy terms will be best positioned to transition to the "new normal" longer-term drivers of the industry, Fitch said.

In a statement, Fitch said that it estimates that incurred losses from coronavirus claims totaled approximately $8 billion for North American publicly traded insurers to date. The loss is approximately $23 billion when large global (re)insurers are included, the rating agency said.

Drawn-out settlement litigation for claims in a number of segments is expected to take years, Fitch said. Ultimate insured losses will depend on uncertain factors including the duration of the pandemic, the extent of economic shutdowns from potential future waves of large-case outbreaks, the timing of a return to more normal business and social activity, and the speed and strength of the economic recovery.

Higher pricing following recent losses, compounded by fear and uncertainty over pandemic-related claims, has led to tighter underwriting terms and conditions in many areas, Fitch said, with commercial lines rate increases reaching levels not seen since 2003.

Changes in market conditions boost the potential for profit improvement for insurers when pandemic-related losses subside, the rating agency said, though larger underwriting profits are required to generate adequate returns to offset investment income declines resulting from persistently low interest rates.

Challenges managing traditional sources of volatility such as natural catastrophe exposures or claims severity from medical and litigation costs could also hinder insurers' future progress toward profitability, Fitch said.

November 09, 2020