Underwriting income for the U.S. property/casualty (P/C) industry fell by 5.5% in the first half of 2020, compared with first-half 2019, on increases in underwriting expenses and policyholder dividends, largely stemming from COVID-19-related factors. This AM Best financial review is detailed in a new Best's Special Report, titled, "First Look: 6-Month 2020 Property/Casualty Financial Results," and the data is derived from companies' six-month 2020 interim statutory statements that were received as of Aug. 19, 2020, representing an estimated 97% of the total P/C industry's net premiums written.
The report notes that the decline in insured exposures resulting from stay-at-home orders and government-ordered business closures in response to the COVID-19 pandemic prompted some P/C insurers to provide premium credits in a number of forms. During the reporting period, underwriting expenses increased 5.5% as some companies, including Progressive, recorded policyholder credits as an underwriting expense rather than a reduction of premium. Dividends to policyholders increased $3.4 billion from the prior-year period, as companies such as State Farm and USAA provided refunds in the form of dividend payments.
"While the personal lines segment was most impacted by the premiums credits provided to policyholders in the second quarter, which produced increases in underwriting and dividend expenses, the segment's loss ratio for the first half of the year improved by nearly six points," said Jennifer Marshall, director, AM Best.
The P/C industry's first-half combined ratio remained relatively flat year over year at 97.6. AM Best estimates that catastrophe losses accounted for 6.5 points on the six-month 2020 combined ratio, up from an estimated 4.5 points in the prior-year period. "Although catastrophe losses were up for the first six months, the decline in the loss ratio reflects the effect of reduced auto accident frequency, particularly for the personal segment," said Marshall.
With her initial look at the P/C industry's statutory results, Marshall added that companies in the commercial lines segment also benefited from the decline in auto accident frequency; however, the benefit was offset by the higher catastrophe losses, along with reduced favorable development of prior years' loss reserves and the establishment of reserves to pay pandemic-related claims. The commercial segment loss ratio increased by over four percentage points through the first six months of 2020, compared with its 2019 level.
The decline in net underwriting income, coupled with slight declines in net investment and other income, reduced pre-tax operating income 4.8% from the same period in 2019. Tax expenses were flat, but a $5.5 billion decline in realized capital gains contributed to industry net income decreasing 21.6% from the prior-year period to $25.0 billion.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=300533.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
Copyright 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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Contacts:
Matthew Coppola
Director, Data Management
+1 908 439 2200, ext. 5627
matthew.coppola@ambest.com
Jennifer Marshall
Director
+1 908 439 2200, ext. 5327
jennifer.marshall@ambest.com
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com
Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com
