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COVID-induced premium drop hits P&C re/insurers: AM Best

17th December 2020 - Author: Matt Sheehan

AM Best has reported a reduction in property and casualty (P&C) re/insurance premiums this year due to the COVID-19 pandemic.

Declining reinsurance profitsThe drop in premiums runs counter to the overall industry trend, which had seen premium volume rise for most of the 33 P&C lines through to the end of 2019.

But stay-at-home orders and government-mandated business closures have put pressure on premium levels this year, in combination with insurance relief measures such as rebates, refunds and payment deferrals, AM Best notes.

The increasing unemployment rate and proliferation of remote workers has spurred a decline in private passenger vehicle traffic in 2020.

This shift prompted insurers to offer premium refunds and discount programs, which resulted in a 2.5% drop in direct premiums written by private passenger auto insurers through the first nine months of 2020 compared with 2019/

AM Best pointed out the contrast to the trends from 2016 to 2019, when rate increases drove premiums upward.

Additionally, the impact for workers’ compensation was far more pronounced because of rates and decreases in payrolls.

According to the rating agency, total DPW for this segment through September 2020 had dropped off 13% compared with the same prior-year period.

Group accident and health premium was also down, almost 18% year over year, likely attributable to the decline in employees on group accident plans and canceled activities.

Turning to commercial property lines—specifically fire, allied lines and the property portion of commercial multiple peril policies— premium was found to have increased due mainly to rate increases coming into 2020, which continued through the first quarter.

Given the record number of named storms during the 2020 Atlantic hurricane season, expected claims costs will maintain the pressure on pricing and push average premiums upward.

Despite these challenges, AM Best also highlighted a potential upside for P&C insurers in auto insurance lines, which have all benefitted from less traffic on the roads, with commercial auto liability generating its lowest loss ratio since 2016.

Private passenger liability and physical damage are each down 15% (over nine loss ratio points) from the same time a year ago and, while the severity of losses continues to be a challenge, loss frequency decreased due to decrease in miles driven.

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