US property/casualty insurers to face greater COVID-19 impact in second quarter results
The overall impact from the COVID-19 pandemic on US property/casualty was limited in the first quarter of 2020, but ratings agency AM Best anticipates that the impact will be considerably more apparent in second quarter results.
US property/casualty industry’s surplus level decreased by 9.3 percent to $744.9 billion in the first quarter of 2020, compared with year-end 2019, according to AM Best's latest report. Part of the drop-off in surplus was attributed to an $83.4 billion change in net unrealized capital losses.
The report noted that in Q1 2020 there were greater changes in line of business underwriting results than normal, with personal lines displaying favorable movement.
Jennifer Marshall, director at AM Best, said: "An initial look at the U.S. P/C industry’s statutory results for the first quarter showed that investments overall for this sector seem to have held up well, with the exception of equity holdings. Total equity holdings were down approximately $103 billion in the first quarter of 2020 compared with the same prior-year period, or about 21%. This returned the value of industry’s equity-level holdings to almost its year-end 2018 level."
“At this point, the best we can reasonably expect would be a continued improvement in equity markets through the end of the (second) quarter,” Marshall added. “We do anticipate a heightened level of investment market volatility to continue until the threat of COVID-19 abates. Net investment income may be affected as dividends received may decline with the reduction or suspension of dividends on owned equities.”
Marshall noted that another factor being monitored is the impact of widening credit spreads on bond holdings, as well as negative credit actions, particularly those that result in ratings moving below investment-grade. That would cause the valuation of those holdings to switch to mark-to-market, potentially adversely impacting capital levels.
According to the report, with net investment and other income declining slightly in Q1 2020 from the prior-year period, the improvement in underwriting income drove the 4 percent growth in pre-tax operating income. As the tax expense remained flat and realized capital gains declined $172 million, industry net income increased 3.5 percent from the prior year period to $17.7 billion.
The combined ratio for the US P/C industry improved slightly from the prior year period to 95.2. AM Best estimates that catastrophe losses accounted for 3.2 points on the Q1 2020 combined ratio, unchanged from an estimated 3.2 points in the prior-year period.
Already registered?
Login to your account
If you don't have a login or your access has expired, you will need to purchase a subscription to gain access to this article, including all our online content.
For more information on individual annual subscriptions for full paid access and corporate subscription options please contact us.
To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.
For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk
Editor's picks
Editor's picks
More articles
Copyright © intelligentinsurer.com 2024 | Headless Content Management with Blaze