AM Best has announced it is maintaining its Negative outlook on the U.S. personal lines insurance segment for 2024, due to the continued deterioration in results for the personal auto and homeowners’ lines of business and rising loss costs.
The rating agency observed the challenges that personal lines writers have in maintaining rate adequacy, as well as elevated reinsurance costs amid heightened catastrophe loss volatility and increased secondary peril activity.
“Factors offsetting the negative pressures include solid levels of risk-adjusted capitalization for insurers within the segment with sufficient liquidity,” AM Best said.
The firm also noted improving investment yields and an overall push for rate adequacy with some easing of regulatory hurdles have also contributed positively.
Despite this, Richard Attanasio, senior director, AM Best, said, “The capital cushion has eroded for some insurers. Given the persistently high loss costs, as well as increased levels of net retention for homeowners carriers, a return to underwriting profitability for the segment over the near term appears highly unlikely.”
Chris Draghi, associate director, AM Best, said, “Many segment carriers continue to pursue rate adequacy in response to rising loss cost severity, but their ability to stay ahead of current trends has been challenged.”
AM Best explained that the increase in loss severity for auto has been driven by higher fatality rates, increased repair costs for newer vehicles, higher used car prices, supply chain and labor market disruptions, and rising medical costs, “not to mention the overall inflationary environment.”
Meanwhile, the rating agency said the personal lines segment remains “susceptible to an ongoing trend of material catastrophe-related losses in recent years, which continued in 2023.”
It is well reported that Hurricane Idalia, the Lahaina wildfire disaster in Hawaii, California flooding, freezing winter weather in the Northeast, and severe convective storms (including wind, hail, and tornadoes, particularly in the Midwest and South) produced significant losses.
