US P&C – strong start into the year but pressure on investment results and profitability lies ahead

The industry was off to a good start pre COVID-19 as it earned a ROE of 9.1% in 1Q19, the same as 1Q19, and slightly above the prior 10-year average. Growth in direct premiums written (DPW), at 4.3%. Aggregate net income was down 2.9% yoy to USD 14.62 bn, affecting industry surplus which dropped nearly 1% yoy to USD 790.9 bn. The COVID-19 pandemic has turned the industry outlook upside down, with premiums forecast to decline in 2020 for the first time since the Global Financial Crisis.

Key takeaways:

• The industry was off to a good start pre COVID-19 as it earned a 1Q19 ROE of 9.1%, supported by rate increases in commercial lines.
• Direct premiums written rose by a solid 4.3% in 1Q20 but are expected to decline in the following few quarters.
• We expect rate hardening to persist in 2020.
• The 1Q20 combined ratio adjusted for reserve developments improved slightly to 98.4.
• For the remainder of the year, commercial lines are exposed to COVID-19 losses while personal auto is benefitting from a lower accident frequency.
• Overall reserve releases were up from to the prior year but negative for commercial liability lines.
• Investment results are likely to suffer significantly this year.
• The overall 2020 industry outlook is subdued, with falling premiums and a squeeze on profitability.