JERSEY CITY, N.J., November 9, 2021 — Private property/casualty insurers in the United States posted strong net income growth in the first half of 2021 as the country continued to recover from the economic disruption caused by the COVID-19 pandemic, according to a report from Verisk (Nasdaq:VRSK), a leading global data analytics provider, and the American Property Casualty Insurance Association (APCIA).
As the U.S. economy recovers from the pandemic, insurers' net income rose to $37.5 billion in the first half of the year, up from $24.3 billion in the first half of 2020. The annualized rate of return on average policyholders' surplus, a key measure of overall profitability, jumped to 7.9% in the first half of 2021, up from 5.8% in the first half of 2020. The industry's combined ratio, a measure of underwriting profitability, also improved to 96.7%.
Reflecting an uptick in overall economic activity, insurers wrote $24.4 billion more in premiums during the first half of this year ($348.4 billion) than in the comparable period in 2020 ($324 billion). Earned premiums grew 5.3% to $329.1 billion for the first half of 2021. Renewal pricing for standard commercial lines – general liability, commercial auto, and commercial property – rose 6.7% in the first half of 2021, compared to 7% in 2020 and 5.1% in 2019, according to Verisk's ISO MarketWatch® solution.
More economic activity may also have resulted in more insurance claims, as commuters returned to roads, businesses resumed operations, and material and labor costs rose. Incurred losses and loss adjustment expenses (LLAE) rose 6.9% in the first half of 2021 to $229 billion, significantly higher than the 0.8% increase in the first half of 2020. Catastrophe LLAE contributed $28.9 billion to total LLAE (up from $24.7 billion in the first half of 2020), while non-catastrophe LLAE grew 5.6% to $200.1 billion.
"Net written premiums increased 7.5% in the first half of 2021 (10.3% in Q2) as insurers experienced similar increases in losses and loss adjustment expenses (LLAE) from ongoing record wildfires, floods and freezes, a spike in ransomware attacks, worsening inflation, and spiraling litigation costs," said Robert Gordon, APCIA senior vice president, policy, research and international. "While insurers benefited from a positive swing in net realized capital gains, the industry faces ongoing headwinds from climate change, significant deterioration in auto claims severity, growing cyber liability exposure, and emerging losses from the impacts of long-haul COVID. As the pandemic appears to unwind, the industry has been bolstering its balance sheet to protect consumers against increasing natural and man-made catastrophic exposures."
The effects of the COVID-19 pandemic prompted rebates to auto insurance policyholders and $4.4 billion in policyholder dividends in 2020. Though still slightly above the historical average, the $1.6 billion in dividends issued through the first half of 2021 was closer to pre-pandemic dividend levels.
Insurers' income also benefited from $9.2 billion of realized capital gains, a $10.6 billion swing from the losses realized in first-half 2020.
"We clearly see the imprint of the pandemic on the industry's performance through the first half of 2021," observed Neil Spector, president of ISO at Verisk. "Economic activity that was suppressed for much of the first half of 2020 has sprung back, bringing its own set of challenges. Rising material costs and acute labor and supply chain shortages in many sectors create a powerful need for accurate, continuously updated sources of underwriting data to help insurers manage a dynamic risk environment."
Growth in second quarter fuels first-half performance
Insurers posted $17.5 billion in net income for the second quarter of 2021, a strong improvement from the $6.4 billion in the year-ago quarter. The income increase was also reflected in annualized rate of return on average surplus, which climbed to 7.3% from 3.2% a year earlier. While improved, the rate of return didn't quite reach the 7.6% achieved in the second quarter of 2019 or the 9% hit in the second quarter of 2018. The industry's combined ratio also improved during the quarter to 97.2% from 100.2% in the second quarter of 2020.
View the full report from Verisk and APCIA.
Verisk (Nasdaq:VRSK) provides predictive analytics and decision-support solutions to customers in the insurance, energy and specialized markets, and financial services industries. More than 70 percent of the FORTUNE 100 relies on the company's advanced technologies to manage risks, make better decisions and improve operating efficiency. The company's analytic solutions address insurance underwriting and claims, fraud, regulatory compliance, natural resources, catastrophes, economic forecasting, geopolitical risks, as well as environmental, social, and governance (ESG) matters. Celebrating its 50th anniversary, the company continues to make the world better, safer and stronger, and fosters an inclusive and diverse culture where all team members feel they belong. With more than 100 offices in nearly 35 countries, Verisk consistently earns certification by Great Place to Work. For more: Verisk.com, LinkedIn, Twitter, Facebook, and YouTube.
Representing nearly 60 percent of the U.S. property casualty insurance industry, the American Property Casualty Insurance Association (APCIA) promotes and protects the viability of a competitive private insurance market for the benefit of consumers and insurers. APCIA represents the broadest cross section of home, auto, and business insurers of any national trade association. APCIA members represent all sizes, structures, and regions, which protect families, communities, and businesses in the U.S. and across the globe. For more information, visit www.apci.org.
Ali Krueger Herbert