Top U.S. Personal Auto Insurers 2015 Underwriting Results Decline

Underwriting profitability for private passenger automobile insurance has deteriorated in 2015 for many leading US writers, says Fitch Ratings. The weakening results through the first nine months of the year reverse a trend in underwriting profitability improvement since 2012. The recent results run counter to expectations that improvements in vehicle safety technology should lead to reductions in claim incidents.

This year’s weaker underwriting results are attributable to increases in claim severity and more recently, in claim frequency, which may be related to higher miles driven this year amid low gasoline prices.

Both of these trends are evident in the increase in the weighted average, aggregate personal auto combined ratio – a measure of losses and expenses incurred relative to premiums earned over a period – of the top ten publicly held insurers in the US. In the first three quarters of 2015, this ratio worsened by 220 basis points to 97.1 percent. The group of ten includes GEICO, Allstate and Progressive, the number two, three and four largest U.S. auto writers, respectively, by industry written premium. These three firms together account for over 85 percent of GAAP net premiums written among the top ten public firms.

Eight of the companies in the group saw weakening of their personal auto underwriting results in 2015. Allstate and GEICO had 380 and 390 basis points higher combined ratios versus their first nine-months of 2014, respectively. Allstate, Kemper and Cincinnati Financial were three of the ten companies to report underwriting losses (i.e. combined ratios exceeding 100.0 percent in the nine month period). Hanover Insurance Group and Progressive, however, achieved better year-to-date results in 2015 versus 2014. Progressive and Travelers had the best combined ratios by a wide margin, both at 93.6 percent in the period.

Offsetting weaker underwriting results was an increase of nearly 8 percent in GAAP auto net premiums written for the group in year-to-date 2015 results, relative to the same nine months of 2014. All companies in the sample with the exception of Chubb reported period-over-period increases in net premiums written. GEICO reported growth in excess of 11 percent and was only surpassed by Kemper’s nearly 22 percent increase in premium due to a recent acquisition. Fitch attributes the premium written increases to a combination of rate increases and more policies in force.

Auto insurers will face considerable challenges in improving results in 2016, primarily in managing claims costs. Market information suggests that companies can still get price increases, albeit at a declining percentage of premium. The spread between expenditures on auto insurance and key cost drivers such as vehicle body work, parts and equipment, and medical care remains in insurers’ favor. Still, competition remains fierce with underwriters battling via pricing, enhanced risk selection models, and advertising.

Source: Fitch Ratings