Publicly traded US property-casualty insurers performed unexpectedly well last year despite extraordinary challenges, generating operating income of $82.1 billion, according to a new report from AM Best.
The new Best’s Special Report, “US P/C Insurers Perform Well Despite COVID-19,” covered the vast majority of US P&C insurers that file GAAP statements.
In addition to the effects of the COVID-19 pandemic on the P&C segment, catastrophe losses of more than $66 billion added approximately 7.5 points to the industry’s combined net ratio (on a statutory basis), compared to 4.1 points in 2019. Despite these impacts, publicly traded P&C insurers saw lower exposures to loss for some key lines of coverage, the report found. Performance improved for personal and commercial automobile and workers’ compensation writers, which generate about half of the P&C industry’s net premium volume.
The report found that P&C industry revenue fell slightly to $560.7 billion, driven by an 18.1% drop in net investment income. Expenses grew by 4.1% last year, far exceeding the modest hike in premium revenue.
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However, although operating income dropped by more than 40% in 2020, P&C insurers were profitable. This was partly a reflection of profitability in 2019, a comparatively mild catastrophe year and one in which there was a significant increase in investment income, AM Best said.
The environment for many P&C lines remains competitive despite the need for rate increases in key commercial lines of coverage including catastrophe exposure property, commercial automobile, general and professional liability, and medical professional liability. Many insurers will need to hike premiums to reflect claims costs and loss costs and help improve underwriting profitability, AM Best reported. Additional rate or pricing measures should boost the P&C sector’s premium revenue and operating profitability.