Private US property and casualty (P&C) insurers saw a net underwriting loss of $5.6 billion in the first nine months of 2021, according to global data analytics provider, Verisk, and the American Property Casualty Insurance Association (APCIA).
Non-catastrophe losses returned to pre-pandemic levels, as illustrated by direct losses for personal auto liability, which increased by 14.1% in the nine-month period, pushing the industry’s combined ratio from 98.8% in the first nine months of 2020 to 99.5% in the same period last year.
At the same time, insured catastrophe-related losses remained high, with estimated nine-months net loss and loss adjustment expenses from catastrophes exceeding $48 billion in both 2020 and 2021.
“While catastrophes, including hurricane Ida in September 2021, brought major insured losses, it was an increase in non-catastrophic losses, especially in personal auto, that contributed the most to the worsening of underwriting results in 2021,” said Neil Spector, president of underwriting solutions at Verisk.
“As the economy continued to recover, insurers saw incurred losses return to more typical levels, additionally pushed up by inflation and supply chain issues. Going into 2022, the insurance industry continues to face a wide range of challenges, from climate change to evolving cyber threats. Those insurers with access to robust data from across the industry will be the best equipped for the constantly changing risk landscape.”
Despite the $5.6 billion underwriting loss, the P&C insurance industry’s net income after taxes increased to $42.1 billion in the first nine months of 2021, up from $35.2 billion a year earlier. Verisk and the PCIA attributed this increase partly to premium growth and investment gains.
Net written premium grew 9.4% in the nine-month period, hitting $541.6 billion, up from $495.3 billion in the prior-year period. P&C insurers’ overall profitability – a measurement of their annualized rate of return on average policyholders’ surplus — rose to 6.0% in nine months 2021 from 5.5% a year earlier.
“Insurers are facing an extreme escalation in inflationary pressures that increasingly strained rate adequacy last year,” said Robert Gordon, senior vice president policy, research, and international, for the American Property Casualty Insurance Association (APCIA). “While both net written and net earned premiums increased during the third quarter, incurred losses and loss adjustment expenses increased even more (by 17.8%).
“Net underwriting losses worsened in the third quarter, driving insurers’ combined ratio to 104.5 and contributing to a 57% plunge in net income after taxes. Hurricane Ida contributed to continuing severe levels of catastrophe losses while increased auto accident frequency and severity spiked auto loss ratios.”