As the COVID-19 pandemic continues and its impacts across insurance and reinsurance markets become increasingly clear, Standard & Poor’s (S&P) is maintaining its stable outlook for the U.S. property & casualty (P&C) insurance market and it assigned a stable outlook to 95 percent of P&C insurers. Thus far, the only ratings action S&P has taken is to revise the outlooks from positive to stable for certain insurers. Most importantly, the sector was highly capitalized as it entered the COVID-19 crisis and it maintains a robust capital buffer following asset stress tests.
Additional factors impacting S&P’s stable outlook for the U.S. P&C sector:
• Pricing increases will likely be uneven as insurers pushing for rate increases on personal lines and small- to medium-sized enterprise accounts are likely to encounter difficulties because those sectors are already struggling economically. However, insurers are still pushing rate increases on larger accounts, particularly within excess and surplus lines, as they look to meet return hurdles that have been depressed after years of pricing inadequacy.
• COVID-19 claims in the U.S. P&C primary market are being characterized differently than catastrophe events largely because of the length of time for COVID-19-related claims to manifest, as the pandemic is seen as a longer-tail event.
• Despite the global reach and anticipated costs of COVID-19, S&P expects its effects to be medium in scale and considers it more of an earnings event than a capital event, when it gauges the impact to only the U.S. P&C market.
• Doubts about the sustainability of continued reserve releases.
Negative outlook triggers
Given the sector’s capital buffer, S&P believes it would take a “perfect storm” scenario to trigger a negative outlook change. A combination of the following events would have to occur for the sector’s outlook to change:
• A sizeable catastrophe event (or multiple events)
• A spike in inflation
• “Silent” coverages that could materially change risk perception
• Higher-than-expected corporate bond downgrades or defaults; greater equity market volatility