September 24, 2020 by David Gambrill
Although COVID-19 infected the underwriting results of the entire P&C insurance industry, it did not affect all insurance organizations equally, as recent data released by MSA Research shows.
“The overall picture that emerges at the end of June is one where personal lines and multi-lines writers saw an overall improvement over the first half of  despite the auto [insurance premium] rollbacks and the [Alberta natural catastrophes in the spring], while commercial writers and reinsurers saw deterioration,” Joel Baker wrote in the Q2-2020 MSA Quarterly Outlook Report.
Overall, the combined ratio for the industry (excluding AMF-regulated insurers) for the three months ending June 30 was 103.6%. That’s significantly higher than the 98.2% COR reported in the April to June 2019 period.
“The main culprits in the higher combined ratio were, of course, the Cats in Alberta, very high losses in specialty lines such as fidelity [Direct Loss Ratio, or DLR, of 132%], CGL (DLR over 100%) and, worst of all, cyber liability with an off-the-charts loss ratio of over 1,100%. Cyber was very high across the country. Overall, the liability loss ratio for the three months ending June 30 was 87.5% and finally A&S [Accident and Sickness], which was hit by COVID-19 related losses, stood at 90.2%.”
Thanks largely to claims losses absorbed by commercial writers in the particular lines mentioned above, Canadian commercial writers as a whole (excluding Lloyd’s) experienced a net loss of $5 million during the first six months of 2020, Baker wrote. And although markets remained firm with direct premiums written up 11.7% compared to the first half of 2019, claims in the commercial segment were up 23% on a net basis. The combined ratio for Canadian commercial writers excluding Lloyd’s was 106.11% in the second quarter of 2020, versus 99.78% in 2019 Q2.
“Commercial writers had a rough [first half] in 2020 and there is no reason to assume that things will get much better in the second half,” Baker concluded.
For reinsurers, the picture didn’t look very rosy during 2020 Q2 either.
Several class actions have been launched in Canada over pandemic exclusions in business interruption policies, and a U.K. ruling in a test case of policy wordings determined that some carriers, and consequently their reinsurers, could conceivably be on the hook for pandemic-related BI claims based on policy wordings. Add to that a series of hurricanes causing significant damage in the southern United States recently, and reinsurers will likely be looking for more premium from their primary carrier clients, Baker predicted.
“The battered and bruised reinsurance market, amid dystopian devastation in the southwestern U.S. and worldwide COVID issues, is making convincing sounds of hardening,” he wrote. “The 2021 renewal season promises to be challenging.”
For Canadian personal lines and multi-lines writers, on the other hand, the story is somewhat different. They managed to shave 4.4 points off their combined ratio in 2020 Q2, reporting a second-quarter COR of 101.04%, compared to 105.44% over the same period last year. Net premiums written for these insurers increased by 20.2%, while claims were up by “only” 13.2%.
“The shutdown auto blip saved the day, but the benefit is short-lived,” Baker wrote, referring to the fact that government-ordered shutdowns of businesses to prevent the spread of COVID-19 meant that cars and commercial fleets were not out on the roads during the second quarter. This meant a reduction in claims costs for insurers.
But “the benefit of the COVID-19 shutdown on auto was muted,” Baker observed. “It was offset by premium rebates. The resulting loss ratios were mixed, with some carriers showing very low DLRs while others were more normal (higher ones).”
The overall DLR for the industry in the private passenger segment in the second quarter was 75.4%, and 62% for commercial auto and trucking, according to MSA.
Feature image courtesy of iStock.ca/Chris Ryan