P&C insurers' net income increased in Q1 2021
However, their combined ratio worsened during the same period.
According to a new report from Verisk and the American Property Casualty Insurance Association (APCIA), U.S. private property and casualty (P&C) insurers experienced growth in net income after taxes in the first quarter of 2021 when compared to the same period in 2020. However, insurers’ combined ratio, which is a key measure of underwriting profitability, worsened.
“While the insurance industry’s net income grew significantly in the first quarter of 2021, underwriting results suffered, due in part to severe weather in Texas,” said Neil Spector, president of ISO at Verisk, in a press release.
An increase in realized capital gains and earned premiums helped fuel net income after taxes to reach $20 billion in Q1 2021 — up from $17.9 billion in Q1 2020, said the report.
On the other hand, insurers’ overall and underwriting profitability deteriorated, highlighted by an increased combined ratio of 96.1% for the first quarter 2021. In Q1 2020, P&C insurers had a combined ratio of 94.9%. Insurers’ annualized rate of return on average policyholders’ surplus also declined slightly to 8.7%.
Verisk and APCIA assert that catastrophe losses in the first three months of this year are behind insurer’s profitability struggles, with net catastrophe losses and loss adjustment expenses (LLAE) hitting $16.3 billion for the quarter.
“Those catastrophe losses are a stark reminder that even as we emerge from the pandemic, challenges may lie ahead,” said Spector. “Precision underwriting, enhanced loss controls, and comprehensive risk management and resilience strategies remain critical for insurers. Robust data and advanced analytics can be force multipliers for insurers, helping them achieve a more accurate understanding of the risk environment to support their strategic decisions.”
The report states that in Q1 2021, the industry’s overall LLAE grew 5.3% to $111.1 billion, other underwriting expenses rose 1.3% to $45.7 billion, and policyholder dividends increased to $1.2 billion. Insurers also reported a 46.7% decrease in net underwriting gains ($3.3 billion). However, insurers were able to avoid sharp underwriting losses due to an offset in catastrophe LLAE from a decline in other LLAE and by more favorable LLAE reserve development than in 2020.
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