Given the unprecedented nature and yet to be seen full scale of this pandemic, with respect to duration, severity, and the potential for unfavorable legislative edicts, 2020 will be a very unsettling and unpredictable year for the P&C industry.
Nevertheless, Holborn has evaluated the available, yet still changing, research, statistics, and economic forecasts in an attempt to capture and quantify the financial impact of COVID-19 on 2020 U.S. Property and Casualty In-force Net Written Premium (NWP).
From a larger perspective, the following historical changes in P&C NWP growth helps inform our thinking.
While the exact estimate is hard to quantify, at the moment, there are several insights to glean from macroeconomic information, as well as some additional historical experiences in the industry.
On a more granular basis, the following macroeconomic foundational assumptions are helpful in assessing the impact of COVID-19 on the insurance industry:
US Real GDP: While this figure decreased for the first quarter of 2020 by -4.8% and by a further -37.7% in the second quarter of 2020, according to the Congressional Budget Office (May 2020), U.S. Real GDP growth will be positive during the third and fourth quarters of 2020 (+21.5% and +10.4%, respectively), as well as remaining positive during 2021 at a 4.2% annual rate. This implies good news for the P&C industry as economic activity rebounds across the country and exposure growth returns.
Rising Unemployment: Earlier this year, unemployment reached a historic low of 3.5% – qualifying as “full employment.” However, according to April’s employment numbers, the U.S. economy lost over 20 million jobs in April pushing the unemployment rate to 14.7%. The actual adjusted figure could be at least 5% higher based on how the figures are compiled; this is a fluid figure as demonstrated in the graphic below referencing updated figures on jobless claims through May 21st.
Read the full report COVID-19 NWP 2020 Vol 6 2