Insights From AM Best’s Latest Market Segment Report on Private Passenger Auto Insurance
OLDWICK – NOVEMBER 25, 2024 08:56 AM (EST)
Underwriting results in the U.S. private passenger auto insurance segment has shown further stabilization in first-half 2024 following improvements in 2023, according to a new AM Best report. Due to the improved segment performance and other factors, AM Best has revised its outlook on the personal auto segment to stable from negative.
According to the Best’s Market Segment Report, “Private Passenger Auto: On the Road to Recovery,” the personal auto segment’s direct physical damage loss ratio in first-half 2024 decreased 16 percentage points over the same prior-year period to 63.2 as carriers continued to take steps to address prevailing loss frequency and severity trends. Additionally, the direct incurred loss ratio for personal auto liability insurers also fell to 71.1, compared with 75.6 in first-half 2023.
The overall underwriting result for the private passenger auto line of business in 2023 was still negative, with a net $16.9 billion loss for the year; however, this result was approximately half the net underwriting loss of $33.2 billion in 2022.
“Actions taken by insurers on a state-by-state basis to address price inadequacy in their individual portfolios produced higher premium amounts and helped to bring the aggregate net loss and loss-adjustment expense ratio down in 2023 despite continued increases in incurred losses,” said Helen Andersen, industry analyst, AM Best. “The higher premiums also helped lower the line’s underwriting expense ratio to its lowest point in a decade.”
The 2023 combined ratio of 104.9 was a marked improvement over 112.2 in the previous year. Targeted underwriting and claims-handling initiatives, combined with a push for rate increases, have enabled personal auto insurers to combat multiple factors hampering recent performance. At the same time, regulatory scrutiny of filed rate increases have reduced the speed with which some companies have been able to effectively address rate adequacy.
“The confluence of regulatory, risk-related and macroeconomic challenges facing personal auto underwriters is reflected in the historical underwriting results, with combined ratios for the line being above, and in many years, well-above the breakeven level of 100,” said David Blades, associate director, Industry Research and Analytics, AM Best.
Along with the improved results, the personal auto segment’s improved rate adequacy, the more-accommodating regulatory landscape, solid levels of risk-adjusted capitalization and rising investment yields as lower-yielding bonds mature, which are then reinvested at higher rates, are all factors in the outlook revision to stable.
While the U.S. inflation rate has decreased demonstrably, to 2.4% as of October 2024 from a more than 40-year high of 9.1% in June 2022, insurance claims inflation is still outpacing core inflation. According to the report, numerous insurers have noted that rising jury awards, including nuclear verdicts (i.e., more than $10 million) have made it difficult for rate increases to offset loss costs. AM Best expects personal auto insurers to continue focusing on better control of claims costs, more-effective underwriting and more-efficient claims handling to counteract the squeeze on operating margins.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=349019.
A video discussion of this report also is available at http://www.ambest.com/v.asp?v=personalauto1124.
To view the personal auto outlook report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=349020.
To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.
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