A First Look at the U.S. P&C Insurance Industry Financial Results for 2019 – and What They Mean for 2020

The past three years have been very eventful for the U.S. property and casualty (P&C) insurance industry. Firming markets. Relentless consolidation. Big CAT events. An accelerating pace of innovation. It’s an exciting time to be working in an industry that’s rarely described as such.

And now, as we self-isolate amid the COVID-19 pandemic (perhaps the biggest non-natural catastrophe event since the $45 billion loss on 9/11/2001), we can get the first glimpse of the full-year results for 2019 as they become available from AM Best. Examining these preliminary financial results in their aggregate form is a good occasion to reflect on how the industry performed, where it's going next, and what the challenges and opportunities will be in the next couple of years.

Here are four key takeaways from the 2019 P&C industry results:

  • Underwriting margins were thin (again). The industry posted a calendar-year combined ratio of 98.8%—or, conversely, an underwriting profit of just 1.2%, a slight improvement over 2018. Combined with rock-bottom interest rates, this likely points to a challenging environment in 2020. But pockets of opportunity exist in specialty lines (i.e., cyber) and emerging risks (pandemic) for nimble, entrepreneurial writers.
  • Rates are increasing—but so are loss costs. The good news of rising rates has been tempered by troubling trends in loss costs. Property writers are wary after seeing hundreds of billions of insured losses from three years of hurricanes, wildfires, typhoons, and hailstorms. On the casualty side, publicly traded insurers point to social inflation as a key driver in reserve deterioration, mainly from unexpectedly high claim settlement values and adverse legislation. Success in 2020 will therefore involve pricing strategies that keep rates precisely aligned with underlying loss trends.
  • Despite challenges, the industry is fundamentally healthy. P&C insurers in the U.S. are well capitalized. Policyholder surplus grew to $850 billion and premium leverage is relatively low, with insurers carrying $1 in the bank for every $0.70 of premium collected. For the most part, insurers are able to find the reinsurance capacity they seek from myriad traditional and alternative sources.
  • P&C insurance was not a growth business in 2019, but it wasn't static either. The industry experienced modest growth (about 4%) in net premiums. But among the top 20 writers, results varied significantly, with four insurers posting double-digit gains in growth and two reporting significant shrinkage in their premium bases.

The macro-environment for the P&C industry will likely deliver many headwinds for insurers in 2020–2021. But innovative players will find opportunities for profitable growth amid these challenges. With $6.8 billion of insurtech investment in 2019, ideas to fuel this innovation are everywhere, and some of them are transformative. Insurers that can leverage this innovation—throughout underwriting, claims, modeling, inspection, and distribution—will be those that thrive in a difficult environment.

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