Profits to Sink Until 2021 Second Half: Fitch

While insurance rates have risen for nine consecutive quarters due to large catastrophe losses and accelerating claims inflation, Fitch Ratings expects that technical profits won’t be seen until the second half of 2021 as a result of the effects of the coronavirus pandemic.

According to Fitch, the commercial insurance industry will probably report significant losses in 2020 and H1 2021, postponing a return to technical profitability for most commercial insurers until the second half of 2021.

“The coronavirus pandemic will burden 2020/1H21 results, but will ultimately accelerate the hardening of the commercial insurance market,” Fitch analyst, Robert Mazzuoli, said in the report.

“While, in general, pandemic-induced business interruptions have not been covered by commercial insurers since the SARS pandemic in 2003, unclear policy wording and political pressure now raise increasing doubts how successfully commercial insurers can fend off claims now,” Fitch Ratings said.

Fitch said commercial insurers will be hit hard by pandemic-related claims that affect event cancellation, and credit and surety policies. These claims will run through this year, up to the end of the first half of 2021, said the ratings agency.

Other niche businesses, such as media or travel insurance, will also see large losses, said Fitch, in its report titled “Commercial Insurance Market is Hardening,” published on May 7.

The industry also is facing mounting political pressure to pay for business interruption claims, irrespective of whether the relevant policies cover pandemics, Fitch said.

There will be no immediate clarity about the size of total losses for the industry as litigation between insurers and commercial customers will take months to resolve, the report noted.

Fitch explained that reinsurance cover is unlikely to provide much relief as pandemics are usually excluded from business interruption policies.

Further, the report continued, the whole insurance industry will have to deal with investment losses, calls for rebates in lines of business that see a significant drop in claims — such as motor, and an increasing number of defaulting customers.

Fitch does not expect new capacity to enter the commercial insurance market over the next two to three years until there is a recovery from pandemic-related losses.

The ratings agency said it considers the expected pandemic-related losses in commercial lines of business to be credit negative for the groups involved, as overall earnings resilience is weakened and capital is potentially reduced.