For U.S. commercial insurers, 2020 was once projected to be an improved, even booming year. Then COVID-19 happened, with the ongoing pandemic increasingly making heavy losses all but certain. Still, the sector has plenty of capital to cover pandemic-related uncertainty for the foreseeable future, Fitch Ratings said in a new report.

Fitch said that commercial line insurers have generally displayed longer-term stability and capital strength, made possible in part by robust rate hikes in previous months. That trend alone should help them in the near term as the crisis continues, according to the ratings agency.

That said, 2020 will still be a tough year with plenty of anxiety ahead.

“The onset of the coronavirus pandemic and consequent economic disruption adds uncertainty to near-term incurred losses and premium revenues in several commercial lines segments,” James Auden, Managing Director, Fitch Ratings, said in prepared remarks. “Losses in areas including business interruption, workers compensation and professional liability will take time to unfold and hinge on the ultimate severity and duration of the pandemic as well as regulatory, legislative and judicial outcomes.”

What is helping commercial insurers for now: they posted a break-even underwriting result for the second consecutive year in 2019, with a 99.7 combined ratio. Fitch noted that direct written premiums grew by 6.6 percent for the year, up from a 5.6 percent hike in 2018. For 2019, workers compensation and commercial property lines were quite profitable, though that was offset by worsening underwriting losses in a number of liability segments.

Fitch, in its assessment of commercial lines 2020 results far, said it does not expect improvement for the year because the coronavirus pandemic is generating new losses.

Here’s where the coronavirus stress points will appear, according to Fitch’s assessment: Lloyd’s of London, larger global reinsurers and multiline insurers. Publicly traded insurers and reinsurers have reported about $2.2 billion of pandemic related losses to date, while overall estimated reported losses from COVID-19 issues are now between $11 billion and $13 billion, Fitch said.

Commercial lines insurers will also likely incur many more coronavirus-related losses than their personal lines carrier counterparts.

Before the pandemic hit, Fitch expected the commercial lines combined ratio to improve to between 97 and 98 for 2020, driven by improved underwriting conditions that would outpace any worries about loss trends or reserving weakness.

The full report is: “U.S. Commercial Lines Market Update (Coronavirus Uncertainty Tempers Near-Term Potential for Underwriting Improvement).”

Source: Fitch Ratings