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US personal auto insurers see sharp decline in underwriting performance: Fitch

24th August 2022 - Author: Pete Carvill

Fitch Ratings says that US personal auto insurers saw a sharp deterioration in underwriting performance for 1H22, according to mid-year segment results from public company GAAP filings, with many insurers’ combined ratio (CR) rising above 100% for the period.

fitch-ratings-logoIt said in a statement that these loss trends are likely to remain elevated in the near term as higher inflation, supply chain issues and tight labour markets are leading to sharply rising claims severity for physical damage, collision, and bodily injury coverage.

As a result, it said that carriers are taking more aggressive pricing and underwriting actions in response to recent results. However, a turnaround to prior profitability may take time to materialize, as efforts to raise premium rates are hindered by regulatory constraints in some jurisdictions, including California.

It said: “Personal auto results for 1H22 from supplemental GAAP earnings disclosures for nine publicly traded companies representing approximately 45% of industry market share deteriorated sharply, with the aggregate CR increasing to 101.3% from 90.8% in 1H21, and a record low of 85.6% reported in the early stages of the pandemic in 1H20.”

Of the nine companies that Fitch Ratings looked at, six had seen year-on-year increases in net written premiums. The other three—Kemper, Hartford, and Horace Mann—saw declines of up to 6.1%.

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Fitch added: “Each company in the group reported weaker YoY results. Only three of the nine companies in the group reported an underwriting profit for the period, led by Progressive (PGR) with a 95.1% segment CR in 1H22, followed by Hartford Financial at a 97.0% CR and Hanover at a 98.1% CR. Personal lines underwriters Kemper (KMPR) with a 111.1% CR and Horace Mann Educators (HMN) with a 110.6% CR reported the weakest segment results for the period among the group.”

It went on: “The group’s 1H22 auto insurance loss ratio included 0.3 percentage points (pps) from adverse prior year loss reserve development compared with approximately 1.8 points of favorable development for 1H21. Companies’ reserve experience varied significantly for the period. Cincinnati Financial, GEICO and KMPR each reported favorable development greater than 1 pp on the loss ratio, while Allstate (ALL) (2.9 pps) and HMN (6.2 pps) reported significant adverse experiences in auto loss reserves largely tied to physical damage losses. Written premium growth was a relatively modest 4.5% for the group in 1H22, suggesting that rate increases and other corrective actions take recently will take time to flow through the income statement. Premium growth will likely be more robust in the second half of the year.”

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