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U.S. P/C industry’s underwriting income falls by 86% in 9M 2020: AM Best

1st December 2020 - Author: Luke Gallin

Analysis by ratings agency A.M Best finds that in the first nine months of 2020, the U.S. property / casualty insurance industry saw its underwriting income fall to $600 million, compared with income of $4.5 billion for the same period in 2019.

Declining reinsurance profitsBefore the arrival of a global pandemic, 2020 was already going to be a challenging year for the industry. COVID-19, combined with an extremely active Atlantic hurricane season saw loss and loss adjustment expenses (LAE) rise by 2.3% year-on-year, to $328.4 billion.

This, combined with an overall 4.4% rise in underwriting expenses across the industry to $131.4 billion, resulted in the significant dip in underwriting income for the period.

As a result, A.M. Best reports that the industry’s combined ratio weakened to 98.7% against 98% a year earlier, of which catastrophe losses accounted for an estimated 8.3 percentage points, versus an estimated 4.4 percentage points in the same period in 2019.

In fact, the ratings agency notes that excluding $8.2 billion of favourable reserve development in 9M 2020, which is up on the $7.3 billion reported for 9M 2019, the accident year combined ratio amounted to 100.5% for the industry, compared with 99.6% a year earlier.

RMS

For the 9M period in 2020, net investment income declined by more than 7% to $37.7 billion, while other income also declined, year-on-year, resulting in a 17% decline in pre-tax operating income to $38.5 billion, versus $46.4 billion a year earlier.

“The still developing story for 2020 revolves largely around the impacts of COVID-19 and catastrophe losses,” states A.M. Best. “The reduction in insured exposures resulting from stay-at-home orders and government-ordered business closures in response to the pandemic prompted some P/C insurers to provide premium credits in a number of forms, either voluntarily in most cases or in accordance with regulatory direction in a few jurisdictions.

“Additionally, refunds and policyholder dividends increased as required under existing policy term.”

The ratings agency adds that it is witnessing greater changes in line of business underwriting results than normal, noting favourable results for the personal lines segment, and deteriorating results for the commercial and reinsurance segments.

“We expect these trends to extend into fourth quarter 2020 results,” says A.M. Best.

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