P&C sector ended 2021 strong despite underwriting loss – report

The slide in underwriting losses was driven by growth in non-catastrophe losses, especially for personal auto, according to the report. The insured losses for catastrophes in 2021 remained significant, although associated net incurred losses and loss adjustment expenses fell from $61.4 billion in 2020 to $56.3 billion in 2021.

The industry posted an increase in net income after taxes to $61.9 billion, from $60.3 billion in 2020, driven partially by growth in investment income and in realized capital gains. A combination of factors, including unrealized capital gains, boosted policyholders’ surplus to a record $1,032.5 billion. Insurers’ rate of return on average policyholders’ surplus, a measure of overall profitability, fell to 6.4% in 2021 from 6.9% in 2020, the report found.

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“Although insurers’ net earned premium increased 7.4% and surplus topped a trillion dollars, losses and loss adjustment expenses (LLAE) grew at an even faster rate to 11.1% in 2021, causing an underwriting loss for the year,” said Robert Gordon, senior vice president for policy, research and international at APCIA.

“Insurers’ combined ratio increased to 99.6%, and investment yields dropped to their lowest level since at least 1960. Net non-catastrophe LLAE increased 17.1%, excluding development of LLAE reserves,” he continued. “Insurers’ surplus growth was driven in part by $109.2 billion in capital gains on investments, although some of those gains may have already significantly deteriorated with the strong headwinds in the bond and equity markets in early 2022.

“While the industry balance sheet is strong enough to meet the commitments to insureds, it is facing emerging challenges from the significant and increasing impact of catastrophic weather events, cyber risk and significant price and social inflation/lawsuit abuse.”

“Last year brought strong premium and surplus growth as the economy recovered from COVID-19,” said Neil Spector, president of underwriting solutions at Verisk. “Importantly, this capital cushion bolsters insurers’ ability to respond to future claims as well as looming uncertainties in capital markets, global political risks and record inflation. In these complicated times, access to accurate underwriting data and advanced analytics will help equip insurers with the tools they need to weather the storms facing them.”

The industry’s net income fell to $19.7 billion in the fourth quarter of 2021 from a record $25.1 billion in Q4 2020, the report found. The annualized rate of return fell to 7.9% from 11.3% a year prior. The 7.9% figure is close to the 30-year average of 7.8% for rates of return.