Best’s Report: Profitability Elusive For U.S. Commercial Auto Insurance Writers

The Best’s Market Segment Report, titled, “Near-Term Profitability Still Elusive for U.S. Commercial Auto Writers,” states that despite several years of price increases and corrective underwriting actions, the sector’s combined ratio for commercial auto has not been below 100.0 since 2010. In 2020, the substantial drop in driving due to the COVID-19 pandemic led to better results, with an eight-percentage-point decline in the loss and loss adjustment expense ratio, to 73.5 from 81.5 in 2019.

This decline outstripped an increase in policyholder dividends, which rose nearly four-fold in 2020 as some commercial auto insurers reduced premiums or paid out higher dividends. Although the line incurred a net underwriting loss, it was much smaller than the losses in each of the preceding five years. The segment’s combined ratio for 2020 also improved considerably in 2020, to 101.8 from 109.3 in 2019.

However, AM Best still maintains a negative market segment outlook on the commercial auto segment, due to a decade of unprofitable underwriting results, the growing negative impact of social inflation on claim costs and ongoing adverse development of prior accident-year loss reserves.

From 2010-2019, commercial auto direct premiums rose, but pricing did not keep up with increasing loss costs and risk factors, leading to unprofitable results. Direct premiums written (DPW) for the commercial auto line increased by 23% year over year as of June 30, 2021, and rate increases near or above 10% continue to play a meaningful part in premium growth. The increase in premium volume helped improve the line’s direct loss ratio for the first half of 2021 to 64.3 from 67.9 in the first six months of 2020.

However, with traffic patterns returning to pre-COVID-19 pandemic levels, claims frequency will likely return to previous levels as well, which puts into question whether the improved results for 2020 and for the first half of 2021 will be sustainable in terms of insurer pricing and underwriting actions or primarily reflect anomalous market and economic conditions.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=314483.

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.