October 29th, 2020 Severe Weather
2020 – The Perfect Storm for Forthcoming Negative Rating Pressure
The insurance industry is facing a multitude of events at once in 2020, a “perfect storm” of disasters both natural and manmade.
- Wildfires and hurricanes were above average in 2020;
- The financial markets are pressuring the asset side of the equation putting more stress on solvency and asset liability matching;
- COVID-19 is threatening another shut down that already has many contested BI claims from the first round of shutdowns;
- Unintended cyber exposure has yet to rear its face;
- Civil unrest has the potential to surpass the 1992 LA riots in terms of insured losses; and
- We still have a polarized election upcoming that can wreak further havoc on both the financial market and the civil unrest front.
As we move closer to the end of the year the rating agencies are going to keep a closer eye on risk adjusted capital and stress testing of the aforementioned scenarios on actual 3Q2020 results, forecasted 2020, and 2021 financials. Companies with outsized exposure to these expanding natural and manmade events could receive negative outlooks and downgrades, which could ensue from one or all of three forms: capital shortfalls, increased volatility in current/future operating performance, and unresponsive ERM capabilities. These concepts will be examined along with how companies should be prepared to combat these challenges in the near term.