A new AM Best report claims that despite a highly competitive P&C industry and pressures on operating performance, rated U.S. mutual insurance companies have reported a continued improvement in underwriting performance in 2019, resulting in a growth surplus.
The report states that net premiums written (NPW) for AM Best-rated mutuals grew only by 2.6% in 2019.
Although the pace has slowed in recent years, rated mutuals have seen NPW growth every year since 2010. Net income decreased more than 16% in 2019 to $16.8 billion, following a strong 2018, when net income tripled due to lower losses from catastrophic events.
The lower net income for 2019 was largely attributable to a 7.2% reduction in net investment income and a 32.9% reduction in realised capital gains. The segment recorded a combined ratio of 101.0 in 2019, unchanged from the previous year.
AM Best also noted that the mutual segment’s policyholders’ surplus increased by 9.6% in 2019 to $349.3 billion, driven by nearly $21 billion in unrealised capital gains, as compared with $14 billion in unrealised capital losses in 2018.
As for rest of the industry, COVID-19 is having a major impact on the mutual insurance segment from commercial multi-peril exposure to business interruption claims, to extensive reorganisation of employee office arrangements, to substantial premium refunds as the fundamentals of insured exposure have been radically altered.
A considerable increase in policyholder dividends in first-half 2020 over the same period in 2019 partially reflects these premium refunds, although some may be reported as other underwriting expense, or even as reduced premiums.
The impact of COVID-19 is unlikely to abate and will extend beyond third-quarter 2020 results. Whether the pandemic will reshape a landscape defined by its overall stability remains to be seen.
