The US property and casualty industry’s net underwriting income plummeted by 86% in the first nine months of 2020 compared to the same period last year, according to a new report by A.M. Best.
The decrease is largely due to spikes in underwriting expenses and dividends to policyholders, according to the new Best’s Special Report, titled “First Look: 9-Month 2020 Property/Casualty Financial Results”. The report’s data is derived from companies’ nine-month 2019 interim statutory statements received as of November 18, representing an estimated 97% of the total P&C industry’s net premiums written.
During the first nine months of 2020, underwriting expenses rose by 4.4% as some P&C companies recorded policyholder credits as an underwriting expense rather than a reduction of premium, the report said. Dividends to policyholders rose $3.2 billion from the prior-year period as other companies provided refunds in the form of dividend payments. Coupled with a 2.3% rise in incurred losses and loss-adjustment expenses, these factors led to a dramatic decline in net underwriting income.
The nine-month 2020 combined ratio for the P&C sector weakened by 0.7 percentage points from the prior-year period to 98.7. Catastrophe losses accounted for 8.3 points on the combined ratio, up from an estimated 4.4 points during the same period last year, according to A.M. Best’s estimate. The decline in net underwriting income, in conjunction with declines in net investment and other income, decreased pre-tax operating income by 17.1%.
Tax expenses were lower, but a $4.4 billion drop in realized capital gains drove a decline of 25.2% in the P&C industry’s net income to $35.5 billion, according to the report.