Property/Casualty Insurance Industry Suffered Largest-Ever Drop in Surplus in the First Quarter of 2020
July 28 2020 - 9:25AM
The surplus for the private U.S. property/casualty insurance
industry dropped by $75.9 billion in the first quarter of 2020—its
largest-ever quarterly decline—as the stock market suffered a major
downturn, according to Verisk (Nasdaq:VRSK), a leading data
analytics provider, and the American Property Casualty Insurance
Association (APCIA). Since then, the COVID-19 pandemic has
continued to affect many insurers and will likely impact
underwriting results for the second quarter and the remainder of
the year.
The surplus fell to $771.9 billion as of March 31, 2020, from
the record-high $847.8 billion at the end of 2019. This drop was
mostly driven by a decline in valuations of insurers’ investments.
While the decline set surplus back to mid-2018 levels, traditional
leverage ratios remained below their long-term averages.
Other industry results remained steady or improved from a year
earlier. Net income after taxes in first-quarter 2020 was $17.9
billion, essentially the same as in first-quarter 2019. The net
underwriting gain in the first quarter was $6.3 billion, a 19.9%
increase from a year earlier. Net written premiums increased to
$164.4 billion in first-quarter 2020 from $154.7 billion in
first-quarter 2019—a 6.2% increase.
While having no apparent effect on first-quarter underwriting
results, the COVID-19 pandemic and associated economic disruptions
have affected many insurers, and the impact goes beyond the
investment losses reported in the first quarter. Based on what is
already known about the first half of 2020 and on available
forecasts, significant changes are expected in insured exposures as
well as in the amount and mix of claims. Verisk research estimates
that personal auto insurers have offered more than $13 billion in
policyholder rebates and credits. MarketStance, a Verisk solution,
estimates that at least 1 million insured businesses in the United
States will fail in 2020, and direct written premiums in commercial
lines will decrease 2.8%.
“The historic drop in industry surplus in the first quarter was
concerning for many insurers, as it began to show the impact of
COVID-19 on their results,” said Neil Spector, president of ISO.
“But the impact of COVID-19 on the industry is just beginning to
unfold. Will personal auto insurers see the reduction in losses
matching the policyholder rebates and credits offered this spring?
To what extent will commercial lines premiums be affected by the
challenges facing the economy? How will insurers adapt and continue
to serve their customers efficiently in our new normal?”
Verisk recently created an online resource page
at verisk.com/insurance/covid-19/ to help insurers learn
about new regulations, read about critical insights, and discover
new products being created to address the effects of COVID-19. It
also recently launched a web page that provides strategies for
personal lines insurers in the new normal:
verisk.com/newnormal.
“Property/casualty insurers started the year with solid net
written premium growth, but that was the calm before the storm,”
said Robert Gordon, senior vice president for policy, research and
international at APCIA. “By the end of the first quarter, insurers
experienced their largest-ever quarterly surplus decline as the
stock market suffered its largest drop since 1987 and interest
rates reached a record low. While the industry remains safely
capitalized, many individual insurers face potentially significant
unknown coronavirus liability exposures, as well as political and
regulatory threats of mandated retroactive and prospective COVID-19
coverage.”
View the full report from Verisk and APCIA here.
About Verisk Verisk (Nasdaq:VRSK) is a
leading data analytics provider serving customers in insurance,
energy and specialized markets, and financial services. Using
advanced technologies to collect and analyze billions of records,
Verisk draws on unique data assets and deep domain expertise to
provide first-to-market innovations that are integrated into
customer workflows. Verisk offers predictive analytics and decision
support solutions to customers in rating, underwriting, claims,
catastrophe and weather risk, global risk analytics, natural
resources intelligence, economic forecasting, and many other
fields. Around the world, Verisk helps customers protect people,
property, and financial assets.
Headquartered in Jersey City, N.J., Verisk operates in 30
countries and is a member of Standard & Poor's S&P
500® Index and part of the Nasdaq 100 Index. For more
information, please visit www.verisk.com.
About APCIA Representing nearly 60 percent of
the U.S. property casualty insurance industry, the American
Property Casualty Insurance Association (APCIA) promotes and
protects the viability of a competitive private insurance market
for the benefit of consumers and insurers. APCIA represents the
broadest cross section of home, auto, and business insurers of any
national trade association. APCIA members represent all sizes,
structures, and regions, which protect families, communities, and
businesses in the U.S. and across the globe. For more information,
visit www.apci.org.
Contact:
Joe Madden for Verisk Joseph.Madden@verisk.com 201-232-4486
Jeffrey Brewer for APCIA jeffrey.brewer@apci.org
847-553-3763
Loretta Worters for I.I.I. lorettaw@iii.org 212-346-5575
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