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Verisk & APCIA weigh P&C insurance impact after “turbulent year”

28th May 2021 - Author: Matt Sheehan

A new report by data analytics provider Verisk and the American Property Casualty Insurance Association (APCIA) has looked at the overall impact to property and casualty (P&C) insurer following a year marked by a global pandemic and unprecedented catastrophic events.

The “turbulent year” saw private US P&C insurers’ net income after taxes fall by 2.9% to $60.1 billion, as COVID disrupted economic activity and a historic catastrophe season caused nearly $62 billion in insured losses.

Verisk and APCIA also found that insurers’ rate of return on average policyholders’ surplus, a measure of overall profitability, declined to 6.8% from 7.8% in 2019.

Insurers provided roughly $11.5 billion in premium relief to policyholders despite reporting a 5.6% decline in net investment income caused by the lowest investment yield since at least 1960.

But the sector’s combined ratio, which measures underwriting performance, did improve somewhat to 98.7% in 2020 from 98.9% in 2019 and insurers’ net underwriting gain increased to $5.1 billion from $3.7 billion in 2019.

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“Insurers’ net income and net written premium growth declined in 2020 as the industry was hit by the pandemic and severe natural catastrophe losses,” said Robert Gordon, APCIA senior vice president, policy, research and international.

“Investment yields fell to the lowest level since at least 1960. Insurers eked out a $5.1 billion underwriting gain on more than $650 billion of NWP after reserve releases, although that gain may not reflect the potential of significant long-tail losses from COVID-19,” Gordon continued.

“The drop in personal lines combined ratio is reflective of the drop in the personal auto combined ratio which is largely due to a temporary reduction in miles driven. While personal auto writers provided various forms of rebate and significant rate reduction, severity of claims continued to climb significantly, and miles driven has been rapidly increasing in 2021.”

“During a challenging year, many insurers accelerated their digital transformations and used new technology, like our OneXperience virtual inspection platform, to continue serving their customers,” said Neil Spector, president of ISO, a Verisk business.

“Now, at a moment of great uncertainty—about the continued course of the pandemic, the potential for future climate-driven catastrophes, and the contours of our emerging ‘new normal’—it’s critical for insurers to further enhance their operational efficiencies and sharpen the use of data-driven insights as they reset from 2020.”

Insurers wrote $650.4 billion in net premiums in 2020, an increase of just 2.6% from $634 billion in 2019, in contrast to the 6.2% growth rate reported for the first quarter of 2020, Verisk and APCIA reported. Net earned premium also grew 2.6% for the year.

Many personal lines insurers offered substantial premium relief to auto policyholders in 2020. According to an analysis from ISO, insurers issued roughly $11.5 billion in premium relief to policyholders in 2020 through a combination of dedicated rate reductions at renewals, premium credits, and policyholder dividends.

Partly as a result, net written premium growth for insurers writing mostly personal lines slowed to 0.4% in 2020 from 4.5% a year earlier. Personal lines insurers’ combined ratio improved 2.2 percentage points to 95.6%.

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