By Charlie Wood ___ Pandemic-related insured losses led to unprecedented volatility in the inland marine property/casualty insurance segment in the first half of 2020 and is expected to extend into 2021, Fitch Ratings says.

However, Fitch does note that underwriting volatility and weakness is unlikely to continue longer term as underwriters raise premium rates and add exclusions and tighter policy terms in renewal policies to limit future losses.

Additional insured losses from the coronavirus pandemic will likely be seen in longer-tailed casualty products such as professional liability, workers compensation and credit products.

Inland marine products consist largely of coverage for property in transit, temporary storage of third-party property and elements of transportation such as bridges and tunnels.

Traditionally, the segment has exhibited limited underwriting volatility relative to other commercial lines.

However, Fitch analysts say incurred losses in 1H20 far exceeded historical levels. Indemnification and specific policy wording under coverage varies by carrier, but affirmative coverages for communicable disease for these lines were frequently cited among the direct causes of loss during 2Q20.

Compared to other commercial segments impacted by the pandemic, the P/C industry direct loss ratio for Inland marine rose to 73.4% in 1H20 compared to an average mid-year loss ratio of approximately 45.7% in the prior 10 years.

Inland marine reportedly represented about 4% of industry total direct premiums earned in 1H20 and 8% for commercial lines.

Fitch adds that not all losses for event cancellation coverages are binary in nature. Postponement or other factors could indicate a loss that is less than full limit, bringing uncertainty to the extent of losses.

The impact on near-term premium levels for both travel and contingency products is negative as global travel remains significantly reduced relative to pre-pandemic levels and public health protocols have limited in-person events.

Fitch’s stable rating outlook on the U.S. P/C sector is largely based on the industry and rated insurers’ capital strength to withstand losses from adverse events, which is anticipated to limit the number of negative rating actions in the near term.

Fitch’s fundamental sector outlook remains negative, tied largely to earnings uncertainty; the largest initial effect of the pandemic on P/C insurers was the unrealised losses on equity investments.

P/C/ insurers have absorbed insured losses from the pandemic. However, premium revenues will show effects from the economic consequences of the pandemic over the next 12-18 months.