According to a new report by rating agency AM Best, the net underwriting performance of US property & casualty (P&C) insurers was resilient in 2020, despite a slew of challenges owing to the global COVID-19 pandemic.
It saw above average losses from natural catastrophes, investment market volatility, and numerous events spotlighting the depth of socio-political challenges.
The report noted that the pandemic’s economic reach materially affected several P&C lines of coverage, but the industry withstood the barrage of negative forces to generate 2.3% growth in top line premium and an almost 30% increase in year-over-year net underwriting income.
The direct premium growth was produced despite AM Best’s estimate of US P&C insurers reporting more than $12.9 billion in returned premiums due to reduced exposures resulting from COVID-19.
AM Best believes that the majority of the returned premium is attributable to the automobile coverage. Performance was aided by solid risk- adjusted capital, as well as continued underwriting and pricing discipline.
A decline in loss frequency for several of the industry’s largest lines (private passenger auto, commercial auto, and workers’ compensation) was directly attributable to stay-at-home orders imposed during the pandemic.
Net premium written (NPW) increased YoY in line with direct premium, more than offsetting a less than 1% rise in incurred losses. Other underwriting expenses rose 3.5%, but the lower incurred losses were the biggest factor, driving an improvement in underwriting profitability.
Some of the 2020 events had unintended but positive impacts on the industry’s performance, but this could prove to be a one-year phenomenon. Several lines of coverage started 2020 with the need to address significant, fundamental issues, to pave the way for sustainable improvement.
For lines such as commercial auto, professional liability, and catastrophe- exposed property, insurers have taken rate and underwriting actions to improve results.
P&C insurers’ enterprise risk management skills were put to the ultimate test in 2020. Over the past few years, property underwriters have been significantly challenged by natural catastrophe and wildfire losses that have hampered profitability.
According to the rating agency, 2019 brought some relief as the homeowners multi-peril, commercial multi-peril, and commercial property underwriters faced declines in wildfire, windstorm, and flood activity.
A return of those events in 2020, combined with the pandemic and the resulting investment market volatility and other disruptions, laid the groundwork for the challenges of 2020 and 2021.