U.S. property/casualty insurance underwriting income dropped 5.5 percent in the first half of 2020 versus the same period last year. Higher underwriting expenses and policyholder dividends largely connected to COVID-19 costs are to blame, according to an A.M. Best report.
A.M. Best said it drew its conclusion based on carriers’ six-month interim statutory statement, received as of Aug. 19. That data represented about 97 percent of the total P/C industry’s net premiums written, the ratings agency said.
A.M. Best said that the decline in insured exposures stemmed from stay-at-home orders and government-ordered business closures in response to the COVID-19 pandemic, which prompted some P/C insurers to provide premium credits.
During the reporting period, underwriting expenses increased 5.5 percent, A.M. Best said, as some companies, including Progressive, recorded policyholder credits as an underwriting expense rather than a reduction of premium. Dividends to policyholders increased $3.4 billion from the prior-year period, as companies such as State Farm and USAA provided refunds in the form of dividend payments.
Flat Combined Ratio
The P/C industry’s first-half combined ratio remained relatively flat year over year at 97.6. A.M. Best estimates that catastrophe losses accounted for 6.5 points on the six-month 2020 combined ratio, up from an estimated 4.5 points in the prior-year period.
The commercial segment loss ratio increased by over four percentage points through the first six months of 2020 compared with its 2019 level.
The decline in net underwriting income, coupled with slight declines in net investment and other income, reduced pre-tax operating income 4.8 percent from the same period in 2019. Tax expenses were flat, but a $5.5 billion decline in realized capital gains contributed to industry net income decreasing 21.6 percent from the prior-year period to $25.0 billion, A.M. Best said.
The full Best’s Special Report is “First Look: 6-Month 2020 Property/Casualty Financial Results.”
Source: A.M. Best
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