After a profitable 2019, the U.S. personal lines insurance sector is positioned to see underwriting profits in 2020 even against a backdrop of economic uncertainty from the coronavirus pandemic, says Fitch Ratings.
The rating agency noted that personal lines insurers have been most affected by the decline in risk exposures tied to changes in economic and social activity.
This includes reductions in miles driven that reduces near-term claims frequency for auto insurers, boosting near-term profits.
“A reduction in vehicle usage amid the coronavirus pandemic has lowered risk exposures and claims frequency for personal auto insurers that boosted near-term underwriting performance,” said James Auden, managing director, Fitch Ratings.
“Recent premium returns and rebate actions do not fully offset recent lower claims experience, but will foster price competition that may lead to poorer performance when economic and claims activity normalizes.”
Fitch has maintained a stable rating outlook on US property and casualty (P/C) re/insurance, including the personal lines sector, although the near-term fundamental outlook was changed to negative in March 2020.
Personal lines insurance is the largest major segment of the US P&C insurance market, with approximately $344 billion (54% of total industry premiums) in 2019 written premiums.
But net written premiums growth slowed to 3% in 2019, from an average rate of 6% from 2015-2018 as auto premium growth diminished.
The sector posted improved aggregate underwriting profits, with a 98.7% combined ratio (CR) in 2019, driven by the homeowners’ insurance segment, which turned profitable (98.5% CR) with a respite from large catastrophe losses from hurricane and wildfire events.
The larger private passenger automobile segment also posted a second consecutive year of underwriting profits that narrowed to a 98.7% CR in 2019.
“Auto insurers’ premium growth in 2020 will greatly diverge from historic trends given premium refund and rebate actions in response to exposure changes from the pandemic,” added Auden.
“But the long-term shift in market share towards large publicly held underwriters with direct distribution and sophisticated pricing capabilities will not be affected.”
