Underwriting losses in the U.S P&C personal lines segment grew for the fourth consecutive year in 2017, according to a new report by Fitch Ratings.
The industry statutory personal lines combined ratio rose to 103.8% in 2017 despite continued favourable written premium growth and moderate improvement in the personal auto segment, which had driven losses in the previous three years.
Fitch found that a considerable factor in 2017’s results were substantially higher catastrophe-related losses, which resulted in a sharp downturn and a combined ratio of 107% for the homeowners’ segment, which had experienced strong underwriting gains in the previous four years.
“The homeowners’ line is traditionally a more volatile product segment, which experienced a higher combined ratio than personal auto for the first time since 2012,” said James Auden, Managing Director at Fitch Ratings.
In contrast, Fitch found that personal automobile insurance, which had previously suffered due to inadequate pricing and adverse claims trends, showed some mild improvement despite continued underwriting losses, with its combined ratio falling nearly four points to 102.6%.
Fitch also observed that personal auto is currently the fastest growing major industry segment, having increased net written premium by more than 7% over the last two years.
‘Growth for auto insurance premiums is likely to continue in 2018 due to favorable price movements,’ said Auden, noting that this trend may help shift the fortunes of the struggling market segment.
Fitch expects personal auto to move closer to a 100% combined ratio over 2018 and remains confident that the homeowners line will recover, although it maintains its overall negative outlook for the U.S personal lines sector, despite considering most personal lines writers to be stable.
Results may also be affected by the highly competitive nature of the P&C personal lines sector, as the largest underwriters continue to vie for policyholder and revenue growth with distribution strategies, operational efficiencies, pricing sophistication, and marketing tactics.
Fitch also noted that many of the larger personal lines writers are developing information systems that provide for more sophisticated analytics in terms of risk selection, pricing, and operations, which are creating benefits for operating scale and are promoting more concentrated market share.
