US pandemic losses will take years to determine says Fitch

The amount of pandemic-related losses for the US property-casualty insurance market remains unclear and will take several years to determine, according to Fitch Ratings.

Business interruption, general and professional liability and other lines are still subject to uncertainty regarding the ultimate loss outcome, in part as a result of continuing litigation, it added.

Overall incurred pandemic losses for US property-casualty insurers increased only modestly in fourth quarter of 2020 from earlier quarters in the year, as Fitch said its rated property-casualty insurers broadly maintained capital strength over the past year, with pandemic-related adverse ratings actions limited.

However, it said, uncertainty remains regarding the full financial consequences and total insured losses from the pandemic.

It said that a substantial volume of litigation remains unresolved, creating vulnerability to adverse judicial actions in BI and other segments. Class action filings may still emerge in BI and other liability coverages including directors and officers, errors and omissions, and employment practices and their extent may depend on strength of the economic recovery.

According to the analysis, the outcomes of BI cases have largely been favourable for insurers, with a more consistent record in federal court relative to the various state courts. Federal courts have largely accepted BI policy language specifying physical damage to property.

In addition, Fitch noted, federal courts have upheld exclusions for viruses in the contract language of insurers’ BI policies. Individual cases of adverse rulings to insurers are leading to escalation to higher or appellate courts rather than full settlements currently.

Fitch added: “A group of 50 North American publicly traded insurers reported over $9 billion in coronavirus-related losses in 2020. Including Lloyds of London and major global (re)insurers, the total approximates $30 billion. Losses related to event cancellation and travel coverage represent a significant portion of claims incurred and paid to date. The majority of all losses continue to be carried as incurred but not reported by insurers.

“The 2020 economic lockdown spurred thousands of BI claims. Insurers assertion that physical damage to property is required for a valid BI claim has largely held in judicial rulings to date, particularly for policies with traditional language and terms and that have virus exclusions. Insurers indicate that a significant number of BI notices and claims have been withdrawn or closed without payment.

“Estimating magnitude of BI losses is difficult as coverage is embedded within other commercial products. BI premiums and losses are not disclosed in statutory filings. A substantial volume of litigation remains unresolved, creating vulnerability to adverse judicial actions in BI and other segments. Class action filings may still emerge in BI and other liability coverages (D&O, E&O, EPLI), the extent of which may depend on strength of the economic recovery.”

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