This is the finding of Best’s Special Report, “First Look: 6-Month 2020 Property/Casualty Financial Results”, published in August, which found that realised capital gains for this group of insurers dropped by $5.5 billion as underwriting expenses increased and policyholder dividends paid out.
Underwriting expenses increased 5.5 percent as some companies, including US-based Progressive, recorded policyholder credits as an underwriting expense rather than a reduction of premium.
Policyholders dividends were up by $3.4 billion compared with the first six months of 2019 as companies such as State Farm and USAA provided refunds in the form of dividend payments.
The report said that the decline in insured exposures resulting from stay-at-home orders and government-ordered business closures in response to the pandemic prompted some P&C insurers to provide premium credits in a number of forms.
The P&C industry’s first-half combined ratio remained relatively flat year-on-year at 97.6 percent. AM Best estimates suggest catastrophe losses accounted for 6.5 points on the six-month combined ratio, up from an estimated 4.5 points in the same period for the year before.
“The decline in the loss ratio reflects the effect of reduced auto accident frequency.”
Jennifer Marshall, AM Best
Jennifer Marshall, director at AM Best, said: “While the personal lines segment was most impacted by the premiums credits provided to policyholders in the second quarter, which produced increases in underwriting and dividend expenses, the segment’s loss ratio for the first half of the year improved by nearly six points.”
Marshall said that companies in the commercial lines segment also benefited from the decline in auto accident frequency. However, the benefits were offset by the higher catastrophe losses, along with reduced favourable development of prior years’ loss reserves and the establishment of reserves to pay pandemic-related claims.
The commercial segment loss ratio increased by more than four percentage points during the first six months of 2020, compared with the same six months in 2019.
“Although catastrophe losses were up for the first six months, the decline in the loss ratio reflects the effect of reduced auto accident frequency, particularly for the personal segment,” she said.
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