Private property-casualty insurers in the US reported strong net income growth in the first half of 2021 as the country continued to recover from the economic impact of the COVID-19 pandemic, according to a report from data analytics provider Verisk and the American Property Casualty Insurance Association (APCIA).
Insurers’ net income rose to $37.5 billion in the first half of 2021, up from $24.3 billion in H1 2020, according to the report. The annualized rate of return on average policyholders’ surplus – a key measure of overall profitability – rose to 7.9% in the first half of 2021, up from 5.8% in the first half of 2020. The industry’s combined ratio improved to 96.7%, according to the report.
Insurers wrote $24.4 billion more in premiums during the first half of the year ($348.4 billion) than in the same prior-year period ($324 billion). Earned premiums grew 5.3% to $329.1 billion for H1 2021. Renewal pricing for standard commercial lines – general liability, commercial auto, and commercial property – rose 6.7% in the first half, compared to 7% in 2020 and 5.1% in 2019, according to Verisk.
Increasing economic activity may have resulted in more insurance claims as commuters hit the roads again, businesses resumed operations, and material and labor costs rose, according to the report. Incurred losses and loss adjustment expenses (LLAE) were up 6.9% in H1 2021 to $229 billion, a significant spike from the 0.8% rise in H1 2020. Catastrophe LLAE contributed $28.9 billion to total LLAE (up from $24.7 billion in H1 2020), while non-catastrophe LLAE rose 5.6% to $200.1 billion.
“Net written premiums increased 7.5% in the first half of 2021 (10.3% in Q2) as insurers experienced similar increases in losses and loss adjustment expenses (LLAE) from ongoing record wildfires, floods and freezes, a spike in ransomware attacks, worsening inflation, and spiraling litigation costs,” said Robert Gordon, senior vice president for policy, research and international at APCIA. “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. 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 pandemic resulted in rebates to auto insurance policyholders and $4.4 billion in policyholder dividends in 2020, the report said. Although still slightly higher than the historical average, the $1.6 billion in dividends issued through the first half of this year was closer to pre-COVID levels.
Insurers’ income also benefited from $9.2 billion of realized capital gains, a $10.6 billion swing from the losses posted in H1 2020.
“We clearly see the imprint of the pandemic on the industry’s performance through the first half of 2021,” said Neil Spector, president of ISO at Verisk. “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, up from $6.4 billion in Q2 2020. The income increase was also reflected in the annualized rate of return on average surplus, which spiked to 7.3% from 3.2% the prior year. The rate of return did not quite match the 7.6% achieved in Q2 2019 or the 9% posted in the second quarter of 2018.
The industry’s combined ratio also improved during the quarter to 97.2% from 100.2% in Q2 2020, the report said.