P/C Insurers Report a 26 Percent Drop in Net Income in First-Half 2020
Industry Results Begin to Show Effects of COVID-19, According to Verisk and the APCIA
JERSEY CITY, N.J., October 27, 2020 — Net income for the private U.S. property/casualty insurance industry dropped 26% in the first half of 2020, as the effects of COVID-19 began to hurt insurer underwriting results and investment gains, according to Verisk (Nasdaq:VRSK), a leading data analytics provider, and the American Property Casualty Insurance Association (APCIA).
Net income after taxes fell to $24.3 billion in first-half 2020 from $32.8 billion in first-half 2019. Contributing to that drop was $1.4 billion in realized capital losses on investment in first-half 2020, a swing from $4.3 billion in realized capital gains a year earlier.
Net underwriting gains declined to $4.6 billion in first-half 2020 from $5.4 billion a year earlier. Net written premiums grew 2.8% in first-half 2020, above the 1.0 percent a year earlier, but significantly below the 6.2% premium growth rate in first-quarter 2020.
Beginning in the middle of March, the COVID-19 crisis led to large-scale disruptions of daily life and economic activities, affecting insurance premiums. For some commercial policies where the premium is determined by sales, payroll, or other activity-sensitive measures of exposure, economic events directly led to lower premiums.
Many auto insurers provided premium relief to their policyholders as a combination of partial returns of premium, prospective rate reductions, and policyholder dividends. The relief provided within the first half of 2020 could exceed $10 billion, according to an analysis by ISO, a Verisk business.
“Slow improvements in the financial performance of the U.S. property casualty insurance industry were abruptly reversed in the first half of 2020 due to the compounded effects of COVID-19, catastrophes, and civil unrest,” said Robert Gordon, senior vice president for policy, research and international at APCIA. “The combined ratio rose above 100 percent in the second quarter, and potential near-record third quarter catastrophe losses are all but certain to push underwriting results further into negative territory. In addition to experiencing increased losses, insurers are facing a significant drop in revenue from the economic downturn, greater outflows from promised auto insurance rebates to consumers, and a continuation of historically depressed investment returns. While the industry remains stable and able to meet its expected obligations, aggregate policyholder surplus declined $22.1 billion in the first half and the unusual combination of losses and future uncertainty is weighing heavily on renewals.”
“The most visible impact of COVID-19 on underwriting results in the first half of 2020 was the reduction of both premiums and losses, as business in many sectors slowed, auto traffic decreased, and insurers provided premium relief to customers in both personal and commercial lines,” said Neil Spector, president of ISO. “Significant uncertainties remain about the future effects of COVID-19 and it will take time before we know the full impact on insurers’ exposures and losses. While our elected officials navigate the challenges of protecting the U.S. population and supporting its economy during the pandemic, many insurers are responding to the challenge by accelerating their digital transformations to help improve efficiencies, make informed underwriting and claims decisions, and meet the changing needs of their customers.”
This year, Verisk launched an online resource page to help insurers learn about new regulations, access in-depth analysis and critical insights, and discover solutions being created to address the effects of COVID-19. Verisk has also forecasted the potential impact of COVID-19 on commercial lines and developed a web page that provides future-facing strategies for personal lines insurers as they adapt to the new normal.
Insurers’ net income after taxes fell to $6.4 billion in second-quarter 2020 from $14.9 billion in second-quarter 2019, and their combined ratio deteriorated to 100.2% in second-quarter 2019 from 98.9% a year earlier.
Net written premiums fell $0.7 billion, or 0.4%, to $159.7 billion in second-quarter 2020 from $160.3 billion in second-quarter 2019.
Net underwriting results deteriorated to $1.6 billion in losses in the second quarter 2020 from $0.1 billion in net underwriting gains a year earlier. 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.