Private property/casualty insurers in the United States saw their net income after taxes increase in the first quarter of 2021 from a year earlier, while their combined ratio worsened, according to a new report from Verisk, a global data analytics provider, and the American Property Casualty Insurance Association. The report was released July 26.
A month later AM Best reported in its First Look Six-Month 2021 Property/Casualty Financial Results special report that the property/casualty industry grew its net underwriting income by 28 percent in the first six months of 2021, compared with the same prior-year period.
Best’s data are derived from companies’ six-month 2021 interim statutory statements that were received as of Aug. 18, representing an estimated 97 percent of the total P/C industry’s net premiums written.
Best reported that the first-half’s 5.4 percent growth in net earned premiums and 55.3 percent decline in policyholder dividends offset increases in incurred losses and loss adjustment expenses and underwriting expenses, leading to the underwriting income increase.
The combined ratio for the first half improved by 0.8 percentage points from the first-half of 2020 to 96.9 percent with catastrophe losses representing 5.8 percentage points, compared with 6.5 percentage points in the first-half of 2020.
A 6.4 percent increase in net investment income and an additional $1.4 billion in other income, coupled with the improvement in underwriting income, drove a 14.1 percent rise in pretax operating income for the first half. A $10.4 billion increase in realized capital gains contributed to industry net income growth of 57.9 percent to $38.1 billion, AM Best reported.
Verisk on First Quarter 2021
Insurers’ net income after taxes increased to $20 billion in the first quarter of 2021 from $17.9 billion in the first quarter of 2020. Growth was fueled, in part, by an increase in realized capital gains and a modest rise in earned premiums from a year earlier.
However, insurers’ overall and underwriting profitability deteriorated. Insurers’ combined ratio worsened to 96.1 percent for the first quarter of 2021 from 94.9 percent in the first quarter of 2020. Insurers also saw a modest dip in their annualized rate of return on average policyholders’ surplus to 8.7 percent in the first quarter of 2021, from 8.8 percent a year earlier.
Events reduce underwriting gains
The first quarter of 2021 was notable for the significant catastrophe losses and loss adjustment expenses, especially from severe winter storms in Texas. Insurers experienced $16.3 billion in net catastrophe LLAE for the quarter, up sharply from $6.0 billion in the first quarter of last year.
The industry’s overall LLAE grew 5.3 percent to $111.1 billion, other underwriting expenses rose 1.3 percent to $45.7 billion, and policyholder dividends increased to $1.2 billion. With a modest 2.3 percent growth in earned premiums, insurers reported $3.3 billion in net underwriting gains for the quarter – a 46.7 percent decrease from the $6.2 billion for the first quarter of 2020. The jump in catastrophe LLAE was partially offset by a decline in other LLAE and by more favorable LLAE reserve development than in 2020, helping insurers avoid underwriting losses.
“While the insurance industry’s net income grew significantly in the first quarter of 2021, underwriting results suffered, due in part to severe weather in Texas,” said Neil Spector, president of ISO at Verisk.
“Those catastrophe losses are a stark reminder that even as we emerge from the pandemic, challenges may lie ahead. Precision underwriting, enhanced loss controls, and comprehensive risk management and resilience strategies remain critical for insurers. Robust data and advanced analytics can be force multipliers for insurers, helping them achieve a more accurate understanding of the risk environment to support their strategic decisions,” Spector said.
“The insurance industry survived severe pandemic challenges in 2020 only to start 2021 with a record freeze in Texas, extreme tornadoes and floods, an unprecedented heatwave in the West fueling intense wildfires that are on track to exceed 2020’s record, and expectations of above-average hurricane activity this year,” said Robert Gordon, APCIA senior vice president, policy, research and international.
“Reserve releases for prior years’ business accounted for virtually all Q1 underwriting gains, while slowing premium growth was unable to keep pace with spiking losses and loss expenses. Industry statutory surplus gained significantly as investments improved in the year following the precipitous decline at the end of Q1 2020. But insurers now face significantly increasing inflationary costs, including medical care, auto repair, building materials and labor all exceeding the underlying consumer price index. Long-term pandemic liabilities are also still unclear, with continued growth in Covid variants globally and unknown medical costs for long-haul Covid victims,” Gordon said.