P/C Insurers Need to Hike Key Commercial Rates Even More: A.M. Best

April 19, 2021

The environment for many of the U.S. property/casualty (P/C) insurers lines remains competitive despite the need for rate increases for key commercial lines of coverage such as property catastrophe, commercial automobile, general and professional liability, and medical professional liability.

For many insurers, there is still a need for premium increases to more adequately reflect claims costs and loss costs to help improve underwriting profitability, said AM Best’s report titled “US P/C Insurers Perform Well Despite COVID-19.”

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Additional rate hikes in 2021 should help boost the segment’s premium revenue and operating profits, the report indicated.

AM Best noted that P/C revenue declined 1.9% to $560.7 billion during 2020, driven by a significant drop of 18.8% in net investment income, while expenses grew 4.1%, far exceeding the modest increase in premium revenue.

Although operating income declined by more than 40%, P/C insurers remained profitable during 2020, which was in part a reflection of profitability in 2019, when insurers saw a comparatively benign catastrophe year and a significant increase in investment income.

“[C]atastrophe losses and a sizable increase in policyholder dividends more than countered the increase in premium revenue,” AM Best explained.

Catastrophe Losses

“Insured losses from hurricanes ($25 billion), convective storms ($30 billion) and wildfires ($11 billion) came to more than $66 billion [during 2020],” said the report, noting that these property losses were considerably elevated from prior years.

“Several hurricanes (including Hurricane Laura, the strongest hurricane to ever make landfall in Louisiana), along with substantial secondary peril losses due to wildfires and convective storms (including a record-setting Midwestern derecho) drove higher property losses,” the report said.

Such perils are likely to continue to increase as a percentage of annual insurance losses as a result of the rise in climate-related risks exacerbated by population growth and rising property values in exposed areas, the report continued.

Even after ceding some of these losses to reinsurers, catastrophic events had almost twice the negative effect on the segment’s calendar year combined ratio than in 2019, adding an estimated 7.5 points to the industry’s net combined ratio (on a statutory basis), versus 4.1 points in 2019.

Despite these higher catastrophe losses, U.S. publicly traded insurers saw lower exposures to loss for some key lines of coverage, such as personal and commercial automobile and workers’ compensation — lines that generate about half the P/C industry’s net premium volume.

Dividend and Repurchase Programs

The report noted that many insurers paused their dividend and share repurchase programs during COVID, although most resumed after assessing the impact.

The total amount of capital returned to shareholders rose by $18.5 billion (89%) to $39.4 billion, in 2020, which stock repurchases increased by $19 billion to $30.1 billion. The rise in stock repurchases was due primarily to Berkshire Hathaway, which repurchased $24.7 billion worth of stocks, an increase of almost $20 billion from 2019.

Shareholder dividends declined 4.9% during, said the report. Only three companies paid out over a billion dollars in dividends in 2020: Progressive Corp, Chubb Ltd., and American International Group Inc., which accounted for 44% of aggregate dividends.

AM Best said, for most companies, dividends paid in 2020 were close to 2019 dividends.

The analysis in this report is based on the vast majority of the U.S. P/C insurers that file U.S. GAAP statements, the ratings agency said.

Source: AM Best

Topics Carriers Commercial Lines Business Insurance Property Casualty Pricing Trends AM Best

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