The surplus for the private United States 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 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.
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 by 2.8%.
“Property/casualty insurers started the year with solid net written premium growth, but that was the calm before the storm,” Robert Gordon, senior vice president for policy, research and international at APCIA, said in a statement. “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.