Earnings of Australian life and non-life insurers will likely drop due to the economic impact of the COVID-19 pandemic, according to Fitch Ratings.

The latest report by Fitch Ratings revealed that the average non-life combined ratio jumped from 94% in the first half of 2019 to 100% in the six months ended June 30, 2020 (H1, 2020) due to record losses from catastrophes.

Meanwhile on the life side, individual disability income insurance (IDII) continued to face losses, and insurers are addressing the regulator’s recommendations to improve IDII sustainability. Pandemic-driven investment market losses also worsened life insurers’ overall losses, recording a net loss of AU$0.5 billion in H1 2020, compared to a profit of AU$0.8 billion in the same period of 2019.

Fitch Ratings expects slow premium growth amid the pandemic due to lower economic activity and customer relief packages launched by insurers. Weak economic conditions would most likely hamper the ability of primary non-life insurers to pass on higher reinsurance costs, which have increased due to the recent catastrophe losses.

“The economic fallout will also add pressure to the ongoing repricing of life insurers’ individual disability insurance portfolios,” the report said.

Fitch Ratings also expects pandemic-related claims to become manageable due to low exposure to vulnerable lines. However, it might be a different case for business interruption claims as they would depend on the outcome of the ongoing business interruption test case. Extreme weather events, including La Niña, might also lead to high non-life claims.