Analysts at AM Best have reported that US property and casualty (P&C) insurers have seen only “limited” impact from COVID-19 on their operating performance metrics.
The rating agency notes that the COVID-19 pandemic brought uncertainty to the insurance industry due to the significant drop in equity markets, which led to unrealized losses and a notable decline in capital in the first quarter of 2020.
Following this, all lines of business saw unrealized losses, but AM Best says that companies across the spectrum of assessment categories have now gained back more than double what was lost during the early months of the pandemic, with ROEs having also returned to normalized levels.
AM Best’s operating performance assessments also show that combined ratios have not seen drastic movement since the pandemic, although some business lines such as auto or medical professional liability have experienced volatility.
“Severity trends in auto lines have picked up, owing to a higher fatality rate, increases in the costs to repair newer vehicles, supply chain and labor market challenges, and rising medical costs,” said Jason Hopper, associate director, industry research and analytics, AM Best.
“The return to a more-normalized level of frequency also has led to profitability pressures of varying degrees, but insurers ahead of the curve in terms of rate increases and rate adequacy have likely built on already present competitive advantages.”
With higher levels of surplus, AM Best notes that higher-assessed companies can use their economies of scale and excess surplus to create efficiencies and keep operating expenses at a lower level than lower-assessed companies.
Furthermore, analysts suggest that the benefits of these lower expense ratio efficiencies flow through to product pricing, where higher-assessed companies can usually offer more competitive rates, which may result in marginally elevated loss ratios.
More significant innovation efforts may therefore further help maintain and gain competitive advantages.