Property-Casualty Insurers Can Expect Repeat of Factors that Shaped 2020 Results

Many of the factors that US property and casualty insurers were forced to deal with in 2020 will likely continue to have an impact on their financial performance in 2021, according to A.M. Best.

Last year's results reflect a still firm commercial lines pricing environment and higher-than-average catastrophe activity, according to a new Best's Market Segment Report titled "P/C Industry Maintains Strong Capital in the Face of 2020 Challenges."

The report notes that despite the high level of catastrophe losses in 2020, the rating agency expects the property and casualty industry's combined ratio to increase only slightly to 99.3 percent for the year, as the reduced frequency in auto lines and improved pricing offset the catastrophe losses.

For most property and casualty lines of business, a rebound in auto accident frequency and severity will likely lead to a combined ratio of 99.8 percent in 2021, A.M. Best said.

A.M. Best notes that many property and casualty insurers reacted to the COVID-19 pandemic by adjusting premiums during the months when the most severe restrictions were in place. Commercial lines premiums were affected by the offsetting impacts of higher rates but lower payrolls and sales.

As a result, A.M. Best said it expects the property and casualty industry's net premiums written to increase just 1.8 percent for 2020, the slowest growth in the past 5 years. However, increased economic activity expected for 2021 should boost industry net premiums written, A.M. Best said.

Deterioration in underwriting and investment performance in 2020 will likely result in 2020 pretax operating income dropping 15 percent to $51.1 billion, while net income will fall 21 percent to $48.8 billion, the rating agency said. Property and casualty insurers should experience a modest deterioration in underwriting results and a slight improvement in investment results in 2021, leading to marginally higher pretax operating income, A.M. Best said.

Overall, A.M. Best said that it expects the trends that had been affecting commercial lines insurers before the pandemic, such as social inflation, rising reinsurance costs, and secondary catastrophe events like wildfires and convective storms, to continue to confront insurers in 2021.