U.S. property/casualty insurers saw their net income jump to $37.5 billion in the 2021 first half, up from $24.3 billion the year before, with gains coming as the country continued to recover from COVID-19’s economic disruption, according to a new report from the American Property Casualty Insurance Association and data analytics company Verisk.
The first half of 2021 turned out to be robust on a lot of levels. The APCIA/Verisk study found the annualized rate of return on average policyholders’ surplus, a key measure of overall profitability, jumped to 7.9 percent in the first half of 2021, up from 5.8 percent in the first half of 2020. The industry’s combined ratio also improved, to 96.7.
Reflecting an uptick in overall economic activity, insurers wrote $324 billion in premiums during the 2020 first half, $24.4 billion more than the same period a year ago. Earned premiums grew 5.3 percent to $329.1 billion for the first half of 2021.
As well, renewal pricing for standard commercial lines – general liability, commercial auto, and commercial property – rose 6.7 percent in the first half of 2021, compared to 7 percent in 2020 and 5.1 percent in 2019, Verisk found.
On the flip side, 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 rose nearly 7 percent in the first half of 2021 to $229 billion, significantly higher than the 0.8 percent 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 percent to $200.1 billion.
Robert Gordon, APCIA senior vice president, policy, research and international, said the gains come even as headwinds will bring future challenges.
“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,” Gordon said in prepared remarks. “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, the report found.
Insurers’ income also benefited from $9.2 billion of realized capital gains, a $10.6 billion swing from the losses realized in the first half of 2020.
“We clearly see the imprint of the pandemic on the industry’s performance through the first half of 2021,” Neil Spector, president of ISO at Verisk, said in prepared remarks. “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.”
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 percent from 3.2 percent a year earlier. While improved, the rate of return didn’t quite reach the 7.6 percent achieved in the second quarter of 2019 or the 9 percent 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.
Source: Verisk, APCIA