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US P&C Insurers Saw Record Surplus Drop in the First Quarter

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July 31, 2020

The US property and casualty (P&C) insurance industry experienced its largest-ever quarterly decline in surplus during the first quarter of this year when surplus fell $75.9 billion, according to Insurance Services Office, Inc. (ISO), a Verisk business, and the American Property Casualty Insurance Association (APCIA).

Since then, the COVID-19 pandemic has continued to affect many insurers and will likely have an impact on underwriting results for the second quarter and the remainder of the year, ISO and the APCIA said in a statement.

Industry surplus fell to $771.9 billion as of March 31, 2020, from a record high of $847.8 billion at the end of 2019. The drop was driven primarily by a decline in the value of insurers' investments, the organizations said.

Despite the decline in surplus, other US P&C industry results were in line with or improved from those of 2019's first quarter. Net income after taxes in this year's first quarter was $17.9 billion, essentially the same as in the first quarter of 2019, ISO and the APCIA reported. The net underwriting gain for the quarter was $6.3 billion, a 19.9 percent increase from the same period in 2019. Net written premiums increased to $164.4 billion in the first quarter of 2020 from $154.7 billion in the first quarter of 2019, a 6.2 percent increase.

Insurers' combined ratio improved to 94.9 percent for first-quarter 2020 from 95.6 percent for the first 3 months of 2019.

The organizations said that while the COVID-19 pandemic and accompanying economic disruptions had no apparent effect on US P&C insurers' first-quarter underwriting results, the crisis has affected many insurers, with an impact reaching beyond the first-quarter investment losses. Insurers will likely face significant changes in insured exposures as well as in the amount and mix of claims, ISO and the APCIA said.

"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," Neil Spector, president of ISO, said in the statement. "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?"

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