Best’s Special Report: U.S. Property/Casualty Insurance Industry Sees Limited Impact From COVID-19 on Operating Performance Metrics

AM Best benchmarking analysis of the U.S. property/casualty (P/C) industry under the rating agency’s methodology shows that companies with higher operating performance assessments report more-favorable ratios while experiencing minimal volatility.

In its new Best’s Special Report, titled, “Limited Impact of COVID-19 on U.S. Property/Casualty Operating Performance Metrics,” AM Best notes that operating performance is a leading indicator of future balance sheet strength and long-term financial stability. Benchmarking is an essential element in AM Best’s rating process, as it allows for comparisons of the performance of a rating unit to its peers, composites and the industry.

Main takeaways from the analysis include:

• Key financial metrics correlate with higher operating performance assessments and higher Financial Strength Ratings;
• Return on equity has returned to more normalized pre-pandemic levels after recovering from the substantial unrealized losses suffered in first-quarter 2020; and
• Combined ratios have not seen drastic movement since the pandemic when viewed by operating performance assessment, although some business lines such as auto or medical professional liability have experienced volatility.

“Severity trends in auto lines have picked up, owing to a higher fatality rate, increases in the costs to repair newer vehicles, supply chain and labor market challenges, and rising medical costs,” said Jason Hopper, associate director, industry research and analytics, AM Best. “The return to a more-normalized level of frequency also has led to profitability pressures of varying degrees, but insurers ahead of the curve in terms of rate increases and rate adequacy have likely built on already present competitive advantages.”

With higher levels of surplus, higher-assessed companies can use their economies of scale and excess surplus to create efficiencies and keep operating expenses at a lower level than lower-assessed companies. Furthermore, the benefits of these lower expense ratio efficiencies flow through to product pricing, where higher-assessed companies can usually offer more competitive rates, which may result in marginally elevated loss ratios. More significant innovation efforts can further help maintain and gain competitive advantages.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=319656.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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