Best’s Market Segment Report: Hints of Trouble Resurface for U.S. Commercial Auto Segment After Bright 2021

OLDWICK, N.J.--(BUSINESS WIRE)--
U.S. commercial auto insurers posted favorable results in 2021, with a combined ratio below 100 for the first time in more than a decade. However, according to an AM Best report, first-half 2022 results point to a reversal of fortune, similar to the troubling results of the 2010s.

The new Best’s Special Report, titled, “Hints of Trouble Resurface for Commercial Auto After Bright 2021,” states that despite a the smallest net underwriting loss, the commercial auto segment had its best year since 2011. The loss ratio for 2021 was higher than the loss ratio 10 years ago, but the combined ratio of 98.7 was 4.6 percentage points lower, as commercial auto insurers have substantially cut underwriting expenses over the past 10 years, to 26.3% in 2021 from 31.7% in 2011. This decline has reflected a steady drop over time and has played an integral role in improving results.

“For several years, insurers have been maintaining greater pricing discipline while striving to obtain more adequate rates for the exposures being presented,” said Christopher Graham, senior industry analyst, AM Best. “With 10 years of persistent average rate increases, the segment saw marked improvement in 2020, followed by additional, albeit smaller, improvement in 2021.”

With the easing of COVID-19 pandemic conditions, loss severity, driven by higher repairs costs for more sophisticated vehicles, and social inflation on liability claims, continue to increase.

“A return to normal travel and shipping levels could bring an increase in injuries and fatalities, which may imminently drive higher loss ratios,” said David Blades, associate director, AM Best. “The four largest states in terms of direct premium present a conundrum since they are among the 10 states with the highest loss ratios, on a five-year average basis and for the most recent year. Without further improvements in these states, continued improvement for commercial auto will be challenging.”

Another significant element negatively affecting calendar-year results over the long term has been adverse loss reserve development on prior years. For each of the past 10 years, according to the report, established reserves have required fortification, peaking in 2019 before markedly improving the past two years. through 2019, the adverse loss development, on average, constituted a majority of the underwriting loss, suggesting that even new exposures were losing money.

“Social inflation has impacted commercial auto insurance more than any other line over the past decade. The continued adverse reserve development is a sign that insurers’ reserving techniques have yet to catch up with judicial trends,” said Graham.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=324863.

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. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Christopher Graham
Senior Industry Analyst, Industry

Research and Analytics

+1 908 439 2200, ext. 5743

christopher.graham@ambest.com

David Blades
Associate Director,

Industry Research and Analytics

+1 908 439 2200, ext. 5422

david.blades@ambest.com

Christopher Sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Al Slavin
Communications Specialist

+1 908 439 2200, ext. 5098

al.slavin@ambest.com

Source: AM Best