Best’s Market Segment Report: U.S. Personal Auto Showing Signs of Improvement

OLDWICK, N.J.--(BUSINESS WIRE)-- The underwriting profitability of the U.S. personal auto line showed signs of improvement in 2017 as carriers' aggressive rate actions have been effective against loss frequency and severity trends, according to a new A.M. Best report.

The Best’s Market Segment Report, titled, “Personal Auto Showing Signs of Improvement,” states that the combined ratio for the U.S. private passenger standard auto composite (companies whose private passenger auto net premiums written constitute 50% or more of their total net premiums written) at the end of third-quarter 2017 had improved by 4.3 points to 101.6 from third-quarter 2016. The total industry’s private passenger auto combined ratio has deteriorated every year since 2013, and in 2016, had slipped to 105.9, driven by a 2.6 point jump in the loss & loss adjustment expense ratio, although the expense ratio improved by 0.8 points.

Increases in frequency and severity over a prolonged period of time have eroded private passenger auto liability reserves. Reserves began to develop less favorably in 2012 and were developing adversely by 2015. Some of the 2015 adverse development can be attributed to late development in multiple prior accident years, but the report states that the 2016 adverse development can be blamed almost entirely on the 2015 accident year. A.M. Best believes setting 2016 accident-year reserves more conservatively should stop some of the bleeding and improve future calendar-year profitability.

Insurers continued to aggressively raise rates in 2017, and have tightened underwriting standards, noting they are comfortable losing customers with larger losses and higher frequency. A slowdown in frequency has helped offset the rise in severity, which has also benefitted net underwriting results. The rise in severity is due largely to an increase in new vehicle purchases and a rise in repair costs. In addition, motor vehicle fatalities per 100,000 people rose in 2015 and 2016, marking the first time since 1994 and 1995 that the fatality rate has increased in consecutive years. Loss frequency trends have flattened due to the unemployment rate leveling off and gas prices increasing in 2017. Comprehensive losses will be higher in 2017 because of widespread damages resulting from the numerous natural catastrophes; however, underlying metrics show that private passenger results are trending in the right direction.

A.M. Best believes addressing frequency and severity trends always is critical for this segment to remain profitable, but personal auto insurers also need to focus on price adequacy and technological advancements. Doing so will decide which companies remain competitive and relevant in the long term.

To access a copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=269661.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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A.M. Best

Bobby Skrabal
Industry Analyst

+1 908 439 2200, ext. 5792

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Michael T. Venezia
Senior Financial Analyst

+1 908 439 2200, ext. 5034

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Source: A.M. Best