In the first nine months of 2020, net income for the U.S. property/casualty insurance industry dropped 27.5% to $35.1 billion and net underwriting gains declined to $0.3 billion, from $5.4 billion a year earlier as the industry dealt with the effects of the COVID-19 pandemic and an historic catastrophe season.
A report from data firm Verisk and the American Property Casualty Insurance Association (APCIA), shows the deterioration in underwriting results was due, in part, to the losses and loss adjustment expenses from catastrophes, which more than doubled to $47.1 billion for nine-months 2020 from $21.5 billion in the same nine-month period a year earlier.
2020 set a record for the number of U.S. catastrophic events. The 2020 catastrophes included 19 events with at least $1 billion in direct insured losses in the U.S. (17 in the first nine months), including the first riot and civil disorder event to exceed that threshold.
The U.S. recorded one of the largest deteriorations on the Verisk Maplecroft Civil Unrest Index over the past year — increasing from the 91st riskiest jurisdiction by the second quarter of 2020 to the 34th. The index assesses the risk of disruption to business caused by various forms of civil unrest — from protests to violent mass demonstrations and rioting.
Auto insurers benefited from the reduced driving activity due to the pandemic during the first nine months of 2020, with the pure loss ratio for auto insurance improving to 56.6% from 65% compared to the same period in the previous year. Many auto insurers provided partial premium refunds to current policyholders and adjusted their rates. Verisk’s ISO estimates that insurers provided approximately $11 billion in direct premium refunds and renewal credits to policyholders.
Policyholders’ surplus rose $16 billion to $863.3 billion as of Sept. 30, 2020, from $847.3 billion as of Dec. 31, 2019, driven by growth in the stock market.
The report said while it might take time before the insured losses directly attributable to pandemic can be reliably estimated, the impact on premiums was immediate. Due to the economic disruption, consumers and businesses deferred and canceled large purchases and capital investments, which led to reduced premium activity. The written direct premium growth slowed to 2.3% for the first nine months of 2020 compared to 4.8% in the same time period in 2019.
Robert Gordon, APCIA senior vice president, policy, research and international, said analysts expect commercial lines insurers to face significant reductions in premiums due to audits that reflect reduced revenues and payrolls. “The industry continues to face the strong headwinds of unknown but potentially severe future COVID-19 related losses and long-term claims,” Gordon said.
COVID-19 vaccines should help the economic recovery going forward but many questions remain. “The beginning of COVID-19 vaccination efforts has provided some hope for people in the United States and across the globe,” said Neil Spector, president of ISO at Verisk. “But the U.S. economy and the insurance industry still face many challenges which will depend on our progress in ending the pandemic.”
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