US P&C insurers profits drop 22% amid COVID-19 crisis, finds report

US property/casualty (P&C) insurers saw a 21.6 percent decline in net profit to $25 billion in the first half of 2020, as realised capital gains fell $5.5 billion due to increased underwriting expenses and policyholder dividends, largely stemming from COVID-19-related factors.

According to AM Best report, underwriting expenses increased 5.5 percent as some companies, including Progressive, recorded policyholder credits as an underwriting expense rather than a reduction of premium.

Policyholders dividends 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.

The report noted that the decline in insured exposures resulting from stay-at-home orders and government-ordered business closures in response to the COVID-19 pandemic prompted some P&C insurers to provide premium credits in a number of forms.

The P&C industry’s first half combined ratio remained relatively flat year-on-year at 97.6 percent. According to AM Best estimates, catastrophe losses accounted for 6.5 points on the six month combined ratio, up from an estimated 4.5 points in the prior-year period.

Jennifer Marshall, director at AM Best, said: “While the personal lines segment was most impacted by the premiums credits provided to policyholders in the second quarter, which produced increases in underwriting and dividend expenses, the segment’s loss ratio for the first half of the year improved by nearly six points.”

Marshall added that companies in the commercial lines segment also benefited from the decline in auto accident frequency; however, the benefit was offset by the higher catastrophe losses, along with reduced favorable development of prior years’ loss reserves and the establishment of reserves to pay pandemic-related claims.

The commercial segment loss ratio increased by over four percentage points through the first six months of 2020, compared with its 2019 level.

“Although catastrophe losses were up for the first six months, the decline in the loss ratio reflects the effect of reduced auto accident frequency, particularly for the personal segment,” she said.