According to data analytics provider Verisk and the American Property Casualty Insurance Association (APCIA), net income for the private US P&C insurance industry dropped 26% in the first half of 2020.
This is due to the effects of COVID-19 which began to impact insurer underwriting results and investment gains.
The net income after taxes fell to $24.3 billion in first-half 2020 from $32.8 billion in first-half 2019. Contributing to that drop was $1.4 billion in realised capital losses on investment in first-half 2020, a swing from $4.3 billion in realised capital gains a year earlier.
Net underwriting gains declined to $4.6 billion in first-half 2020 from $5.4 billion a year earlier. Net written premiums grew 2.8% in first-half 2020, above the 1.0 percent a year earlier, but significantly below the 6.2% premium growth rate in first-quarter 2020.
Beginning in the middle of March, the COVID-19 crisis led to large-scale disruptions of daily life and economic activities, affecting insurance premiums. For some commercial policies where the premium is determined by sales, payroll, or other activity-sensitive measures of exposure, economic events directly led to lower premiums.
Many auto insurers provided premium relief to their policyholders as a combination of partial returns of premium, prospective rate reductions, and policyholder dividends. The relief provided within the first half of 2020 could exceed $10 billion, according to an analysis by ISO, a Verisk business.
Robert Gordon, senior vice president for policy, research and international at APCIA said: “Slow improvements in the financial performance of the U.S. property casualty insurance industry were abruptly reversed in the first half of 2020 due to the compounded effects of COVID-19, catastrophes, and civil unrest.
“The combined ratio rose above 100 percent in the second quarter, and potential near-record third quarter catastrophe losses are all but certain to push underwriting results further into negative territory. In addition to experiencing increased losses, insurers are facing a significant drop in revenue from the economic downturn, greater outflows from promised auto insurance rebates to consumers, and a continuation of historically depressed investment returns.
“While the industry remains stable and able to meet its expected obligations, aggregate policyholder surplus declined $22.1 billion in the first half and the unusual combination of losses and future uncertainty is weighing heavily on renewals.”
Neil Spector, president of ISO commented: “The most visible impact of COVID-19 on underwriting results in the first half of 2020 was the reduction of both premiums and losses, as business in many sectors slowed, auto traffic decreased, and insurers provided premium relief to customers in both personal and commercial lines.
“Significant uncertainties remain about the future effects of COVID-19 and it will take time before we know the full impact on insurers’ exposures and losses. While our elected officials navigate the challenges of protecting the U.S. population and supporting its economy during the pandemic, many insurers are responding to the challenge by accelerating their digital transformations to help improve efficiencies, make informed underwriting and claims decisions, and meet the changing needs of their customers.”