US P/C sector sees big fall in net income for first half of 2020

The US property/casualty (P/C) industry saw its net income fall by 21.6% in the first six months of 2020, from $31.9bn for the first half of 2019 to $25.0bn, according to AM Best. Underwriting income fell by 5.5% in the first half of 2020, compared with the first half of 2019, as a result of increases in underwriting expenses and policyholder dividends, largely stemming from Covid-19-related factors, said Best. Net premiums written increased by 2.9%, from $308.3bn for the first half of 2019, to $317.2bn for the same period in 2020. Underwriting expenses increased 5.5% in the first half of 2020 as some companies recorded policyholder credits as an underwriting expense rather than a reduction of premium, Best explained. Dividends to policyholders increased by $3.4bn as some companies provided refunds in the form of dividend payments. “The decline in insured exposures resulting from stay-at-home orders and government-ordered business closures in response to the Covid-19 pandemic has prompted some P/C insurers to provide premium credits in a number of forms, voluntarily in most cases and in accordance with regulatory direction in a few jurisdictions. Certain insurers have increased refunds and policyholder dividends as required under existing policy terms,” said the ratings agency. Jennifer Marshall, director, AM Best, said: “While the personal lines segment was most impacted by the premiums credits provided to policyholders in the second quarter, which produced increases in underwriting and dividend expenses, the segment’s loss ratio for the first half of the year improved by nearly six points.” The P/C industry’s first-half combined ratio remained relatively flat this year at 97.6, with catastrophe losses estimated to account for 6.5 points on the six-month 2020 combined ratio, up from an estimated 4.5 points in the prior-year period. “Although catastrophe losses were up for the first six months, the decline in the loss ratio reflects the effect of reduced auto accident frequency, particularly for the personal segment,” said Ms Marshall. She added that companies in the commercial lines segment also benefited from the decline in auto accident frequency, although the benefit was offset by the higher catastrophe losses, along with reduced favourable development of prior years’ loss reserves and the establishment of reserves to pay pandemic-related claims. Best noted that the commercial segment loss ratio increased by over four percentage points through the first six months of 2020, compared with its 2019 level. With net premiums earned up 2.8% and incurred losses and LAE flat, the increases in underwriting expenses and policyholder dividends resulted in a decline in net underwriting income for the first six months of 2020 of 5.5% from the prior year period, said Best. In turn, the decline in net underwriting income, coupled with slight declines in net investment and other income, reduced pre-tax operating income by 4.8% from the same period in 2019.

US P/C sector sees big fall in net income for first half of 2020

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