Losses related to the COVID-19 pandemic began hitting insurance books in the second quarter but will remain "manageable" for the industry, according to analysts.
The sector has even seen some economic benefits from the pandemic as the decline in social and economic activities has led to a reduction in the frequency of lower mileage run for commercial and personal car insurance companies. In addition, rising commercial insurance prices have helped to offset a reduction in premiums.
"The second quarter was where you finally saw some of the COVID-19 effects hit the books," said Stephen Guijarro, head of S&P Global Ratings Inc. in New York.
Pandemic effects began to hit insurance companies in the second half of March, said James B. Auden, CEO, North American head of non-life insurance for Fitch Ratings Inc. in Chicago.
"What you saw during the quarter were significant pandemic losses for virtually all commercial insurance companies," said J. Paul Newsome Jr., Chicago-based CEO of investment broker Piper Sandler Cos.
The impact of the pandemic varied for different insurance companies. their risk profiles, business mix, and geographic spread, said Guijarro.
Looking at the losses in the second quarter booked for insurance companies rated by S&P, the estimated losses were initially booked at about $ 5 billion, which was
S&P: "The first estimate of COVID-1
Fitch is looking at a group of about 50 listed insurance companies to provide an indicative power of attorney for the industry, Auden said. insurance companies, the losses from the pandemic amounted to about $ 7 billion, which is equivalent to about 3.5 points on insurance loss ratios are warned. "So upward movement, but things that most companies can handle," Auden said.
Adding to the larger "North American universe" along with Lloyd & # 39 ;s of London and some major European insurance companies, such as Allianz SE, Axa XL, a unit of Axa SA and Swiss Re Ltd., these losses increase to $ 17 billion, Auden said.
Wells Fargo's estimate for industry-wide pandemic-related losses is $ 65 billion, which is the centerpiece of a series of estimates of up to $ 100 billion, says Elyse Greenspan, Head of Capital Research for Property / Non-life Insurance at Wells Fargo Securities LLC in New York.
Even that figure, the largest in the group, is "manageable" for the industry, Ms. Greenspan said. "Based on our analysis, we believe that this is an income event for the industry and will not raise excess capital."
"In general, the amount of losses is more related to core income or perhaps in some cases to a loss for 2020, but not a major capital shift," said Auden.
"Losses seem to be quite manageable from a capital perspective, and it is really a matter of profitability as opposed to solvency, "said Mr. Newsome by Piper Sandler.
Many of the losses so far booked relate to cancellation of events and travel insurance, which are "uncontroversial", he said.
However, there may be uncertainty about claims of business interruptions, however, because the policyholders' challenges of claim are challenged, he says.
"It appears that most companies believe that there will be relatively few business interruption claims in the United States and that the courts will for the most part maintain policy language that excludes business interruption claims for pandemic-related causes," Mr. Newsome said. 19659002] Mr. Guijarro noted that insurance companies have won several early court decisions on business interruption claims.
The open question, analysts say, is the amount of further losses.
"There are obviously concerns for almost everyone in the industry" about more claims related to the pandemic, said Mr. Newsome.
Losses could work for the rest of the year and into 2021, said Greenspan of Wells Fargo.
"There is uncertainty about what will develop in the third and fourth quarters , ”Said Auden. “We do not believe that companies have received all their exposures. I would think that estimates will increase as events unfold. "
Defense spending can be a factor for insurance companies for years because disputes are resolved," he said.
"It's like being in a hurricane that never ends," Mr Newsome said.
Given the losses and the uncertainty, however, created a certain surprise for the insurance companies in the second quarter.
"There were some advantages, especially in car insurance," said Mr. Newsome. "The size and endurance of the lower miles driven was much greater than I expected."  Car insurance companies benefited from extremely favorable loss trends, said Greenspan.
In general, the underlying claims rate in the industry was lower Newsome said than expected, as were underlying results in the second quarter excluding the pandemic.
Commercial insurance companies also see further price increases near the market to harden in the second quarter.
Going up. We have a tough market, said Mr. Newsome. "Insurance companies react to pan demin strains and on the strains of the financial market, and in some cases they increase significantly. "