The net income for the private U.S. property/casualty insurance sector increased by 3% in 2019 to $61.4 billion as the industry’s combined ratio improved to 98.9%, according to analysis by Verisk and the American Property Casualty Insurance Association (APCIA).
Analysis of the sector through 2019 shows that U.S. P/C insurers experienced solid results in the year, supported by economic growth and a decline in catastrophe losses when compared with the previous year.
As well as the rise in net income, the segment also recorded underwriting gains of $3.7 billion, which represents a significant improvement on the $0.2 billion of net underwriting losses recorded in 2018, in part driven by elevated cat losses.
Surplus also increased for the industry in 2019, by more than 14% to $847.8 billion, driven by a stock market recovery after a significant downturn in 2018.
While net income and the underwriting performance improved for the industry year-on-year, net written premium growth of 3.6% represents a fairly sizeable decline from growth of 10.8% recorded in 2018.
Robert Gordon, APCIA senior vice president, policy, research, and international, commented: “The property/casualty industry finished 2019 with modest underwriting gains after two consecutive years of reporting underwriting losses.
“The combined ratio improved slightly year-over-year but worsened significantly compared to the first half of 2019. While insurers enjoyed significant capital gains in 2019, the additional surplus has been substantially decimated by subsequent market declines and COVID-19 related expenditures in the first few months of 2020.
“As we enter a period of increased uncertainty due to the coronavirus, insurers will be closely monitoring legislative, regulatory, and lawsuit abuse trends that could negatively impact the industry’s financial stability.”
A large number of global insurers and reinsurers have now reported their first-quarter 2020 results, and it’s become clear that the pandemic is hitting both companies’ underwriting performance – some more so than others – and investment portfolios.
So, despite the U.S. P/C industry recording an overall gain in surplus through 2019, the significant level of financial market volatility and declining equity markets could lead to sizeable capital losses for insurers, reverting the gains in surplus.
Furthermore, in 2020 the industry could also be affected by the fact less cars are on the roads as a result of the pandemic, which has resulted in premium rebates. And, the fact many businesses have closed or substantially curtailed their operations also stands to negatively impacted the insurance sector, as unemployment rates soar and consumption levels fade, says the report.
Neil Spector, President of ISO, said: “Insurers experienced solid results last year, supported by a drop in catastrophe losses and economic growth.
“However, insurers are facing a wide range of challenges this year because of COVID-19. The pandemic has already delivered unprecedented shocks to the economy and created much uncertainty about how the remainder of 2020 will shape up. It’s unclear how the pandemic will affect underwriting results and the performance of insurers’ investments in 2020.
“Like many other businesses, insurers are looking to protect the well-being of their staff while dealing with unprecedented operational challenges in their effort to provide uninterrupted service. Carriers need to stay informed of the latest developments in the marketplace and be equipped with robust data and remote technology to meet the challenges they’ll face both now and in the future.”
The Verisk and APCIA report also details the industry’s performance in the fourth-quarter of 2019, revealing a rise in net income to $13.4 billion, from $10.2 billion in the fourth-quarter of 2018.
At 102.1%, the combined ratio remained in unprofitable territory but did improve from the 104.6% a year earlier, as net underwriting losses fell to $1.7 billion, compared with $4.9 billion in Q4 2018. Net written premiums jumped by over 6% to $152.7 billion, against $143.7 billion a year earlier.
As evidenced by Q1 results, some firms are clearly going to be more exposed to pandemic-related losses than others as the market moves through 2020, while investment losses appear difficult to evade.
It remains to be seen exactly how impactful the current crisis will be for the insurance industry in the U.S. and elsewhere, and will largely depend on the duration and severity of the COVID-19 outbreak.
