Insurers and brokers’ first-quarter results could be especially complex, reflecting the pandemic-driven turbulence of March.
Complicating matters is how the effects of the coronavirus outbreak will be booked — like a hurricane that occurs at the end of the first quarter, said Paul Newsome, Chicago-based managing director at investment brokerage Piper Sandler Cos., who noted, “Does it get booked in the first or second quarter?”
Such claims and figures will be recorded in the first six months, but whether they get booked in the first or second quarter — “I think there’ll be some questions about that” for liability exposures, Mr. Newsome said.
The slowdown in premiums will be much more pronounced in the second quarter, said James B. Auden, managing director, Fitch Ratings Inc., North American head of non-life insurance ratings based in Chicago. “The second quarter will be more greatly impacted and difficult to estimate.”
Earned premiums, which are earned over the life of the policy, will not drop off steeply in the first quarter, as premiums will still be being earned for business written in 2019, Mr. Auden said.
In lines such as auto, January and February will be “not spectacularly different than normal, but almost the entire month of March is going to be abnormal,” Mr. Newsome said, in terms of variables like miles driven, which anecdotally are off as much as 50%. “This will make earnings hard to interpret,” he said.
There is also the question of premium rebates now being instituted by several companies
“The companies I’ve talked to don’t know how the rebates are going to be accounted for other than they know it’s going to run through underwriting,” Mr. Newsome said. What has yet to be determined, he said, is whether it will be a reduction in premium, a top-line impact, or an expense. The likelihood also is that such costs will be booked in both March and then the second half in April, he added.
Mr. Auden explained that timing will also be critical as to when insurers begin to account in their assumptions for the changes occurring now. “Actuaries like to see more verification of the experience in shift in trend before they change their estimates,” he said.
Wells Fargo forecasts a 15% decline in GDP in the second quarter, which could take brokers into negative organic growth from the “5%+ organic growth world” they have been enjoying, according to a note from analyst Elyse Greenspan.
The bank, however, “still likes commercial and brokers,” according to the note. “COVID-19 does not change our investment preferences.”
Property/casualty insurers, Ms. Greenspan said, should benefit from lower catastrophe losses and pricing momentum, which Wells Fargo believes has continued.
Commercial insurers could see some exposure to sports cancellation claims and potential workforce-related claims in covered industries, such as health care and nursing homes, Wells Fargo said. For the most part business Interruption claims should not be triggered by pandemics, the bank said, but added, “however, there will probably be some lawsuits related to this issue.”
Mr. Newsome expects insurers will be guarded in their comments
“I think the companies are going to be very careful about what they say on first-quarter earnings conference calls,” he said
Fairfax Financial Holdings Inc., which owns Crum & Forster, Allied World Assurance Co. Holdings Ltd. and several other insurers, expects to post a $1.4 billion loss for the first quarter, the company said Wednesday.
Arch Capital Group Ltd. expects to see pre-tax losses across its property/casualty insurance and reinsurance segments of $85 million to $95 million for claims incurred due to the COVID-19 pandemic as of March 31, net of reinsurance recoveries and reinstatement premiums, the company said in a statement Thursday.
