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Q3 cat losses expected be largest since 2017: Fitch


Insurance industry third-quarter catastrophe losses are expected to be the largest since the third quarter of 2017, but insurers and reinsurers are “largely well-positioned” to absorb them, Fitch Ratings Inc. said Thursday in a brief.

Third-quarter events could total approximately $25 billion, which would make 2020 an “above average” year for natural catastrophe losses, Fitch said.

This year’s third-quarter property/casualty losses were driven by an increased frequency of events,  Fitch said, including Hurricanes Isaias, Laura and Sally; the derecho windstorm in the Midwest; and wildfires in California and Oregon.

A few insurers and reinsurers may also include losses from the August 4 explosion in Beirut in third-quarter results.

Fitch said, however, that insurers and reinsurers were adequately capitalized.

“Carriers’ balance sheets were prepared for a potentially strong hurricane season, and invested asset values recovered in recent months from earlier unrealized losses,” Fitch said.

The events will dent earnings but not capital, it said.

“Fitch expects that earnings will remain weak in the third quarter following first-half declines, but capital levels broadly remain strong, with little capital deterioration expected from these events.”

Hurricane Laura was the largest individual loss event with estimated insured losses of between $11 billion and $15 billion. Hurricane Delta, the second hurricane to make landfall in Louisiana in less than a month, is expected to add $1 billion to $3 billion of insured losses, Fitch said.

Allstate Corp. reported approximately $1.1 billion of catastrophe losses in July and August, exceeding the total of any third quarter period since 2011. Travelers Cos. Inc. indicated in quarterly earnings commentary that at mid-year 2020 it had nearly reached the annual aggregate deductible on its reinsurance program.

In the first half of this year, global natural catastrophe losses were below average, with Fitch citing Aon Securities Corp.’s estimated insured losses of approximately $26 billion for the first half, compared with a 10-year (2009-2019) average of $38 billion.

Losses related to the coronavirus pandemic are expected to increase further during the remainder of the year, Fitch said, adding “This accumulation of losses is expected to exceed many individual company catastrophe budgets and further pressure full-year 2020 earnings.”

Fitch expects the more moderate insured loss amounts of individual events to land mainly on primary insurers rather than reinsurers, as catastrophe excess of loss reinsurance programs absorb a smaller share of claims.

The heightened frequency of catastrophe events in the second half, however, will likely continue to put upwards pressure on reinsurance rates at the upcoming January 2021 renewal period, Fitch said.