Zurich result dented by Covid, catastrophe claims & civil unrest

Zurich Insurance Group (Zurich) reported its results for the second-quarter and first-half of 2020 today, revealing an elevated level of catastrophe claims, with the U.S. civil unrest and rioting a key driver of impacts.

Zurich reported growth in commercial insurance and an ambition to take advantage of the improvements being seen in pricing around the globe, all of which suggests the company may look to upsize on its reinsurance arrangements at its next renewals.

The company said that its profit dropped 40% for the first-half of 2020, to US $1.7 billion, down from the prior year’s $2.8 billion.

Chief among the reasons for the decline was the impact of the Covid-19 pandemic, on which Zurich estimates $750 million of property and casualty insurance claims. That’s an estimate for its total loss in P&C from the pandemic, but fully-booked in the first-half of this year.

Also denting the result was a higher rate of natural catastrophe losses in the period, as well as the aforementioned losses from U.S. riots.

Group Chief Executive Officer Mario Greco commented, “The first half of 2020 has been an unprecedented period with unforeseeable events ranging from a global pandemic and recession, to civil unrest and a higher rate of natural catastrophes.”

Severe weather and civil unrest drove catastrophe related claims for the first-half for the P&C segment.

Zurich said that it suffered $234 million of higher catastrophe claims, largely caused by European and North American weather events and civil unrest in the U.S.

This, as well as the pandemic claims, drove the P&C combined ratio to 99.8%, which was 4.8 percentage points higher year-on-year.

At the same time Zurich took advantage of rates to grow its P&C business, with P&C gross written premiums and policy fees rising 4% on a like for like basis to almost $19 billion for the first-half.

This growth was primarily seen in commercial lines across Europe, Middle East and Africa (EMEA) and North America.

“Our business developed well in the first six months of the year in spite of the uncertainties. Our commercial business reported strong growth following improvements to the portfolio mix in recent years, and is positioned to further benefit from the improved pricing environment,” CEO Greco said.

Highlighting the opportunity, Zurich revealed that its commercial prices rose around 8% across the portfolio, year-on-year, with the United States seeing the highest rises at an accelerating pace of of 18% achieved in the second quarter, and 16% on a half-year basis.

Importantly, Zurich’s CFO said this morning that pricing is expected to harden further over 2020 and to remain in excess of loss cost inflation for the insurer.

During the first-half, Zurich ceded far more premiums to reinsurance providers, likely a result of the elevated level of protection in its reinsurance program in 2020, with the total amounting to over $5.2 billion in the period, up on the $4.876 billion of the prior year.

It appears Zurich made some relatively significant reinsurance recoveries during the first-half as well, as it has reported that insurance benefits and losses, gross of reinsurance, were $17.344 billion.

But net of reinsurance that figure falls to a much lower $13.654 billion.

The company doesn’t report the actual level of recoveries made under its reinsurance program, but does report higher reinsurance cessions in property and liability lines of North American commercial P&C business.