According to a new AM Best report, a global credit rating agency, underwriting results in the US private passenger auto insurance sector have continued to stabilise in the first half of 2024, following improvements in 2023.
As a result of the stronger segment performance and other contributing factors, AM Best has updated its outlook on the personal auto segment from negative to stable.
According to the Best’s Market Segment Report, Private Passenger Auto: On the Road to Recovery, the direct physical damage loss ratio for the personal auto segment dropped by 16 percentage points in the first half of 2024 compared to the same period in the previous year, reaching 63.2.
This improvement reflects actions taken by carriers to address ongoing trends in loss frequency and severity. Additionally, the direct incurred loss ratio for personal auto liability insurers decreased to 71.1, down from 75.6 in the first half of 2023.
Although the overall underwriting result for the private passenger auto line of business in 2023 remained negative, with a net loss of $16.9 billion, this was roughly half of the $33.2 billion underwriting loss reported 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,” commented 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 combined ratio for 2023 was 104.9, showing a significant improvement from 112.2 the previous year. Personal auto insurers have managed to improve performance through focused underwriting and claims-handling strategies, along with efforts to raise rates.
These measures have helped them address several challenges affecting recent results. However, regulatory scrutiny of rate increase filings has slowed the pace at which some companies have been able to adjust rates to ensure 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,” added David Blades, associate director, Industry Research and Analytics, AM Best.
The revision of the personal auto segment’s outlook to stable is attributed to several factors, including improved rate adequacy, a more favourable regulatory environment, strong risk-adjusted capitalization, and rising investment yields.
As lower-yielding bonds mature and are reinvested at higher rates, these elements contribute to the segment’s overall stability.
While the US inflation rate has significantly decreased to 2.4% in October 2024, down from a peak of 9.1% in June 2022, inflation in insurance claims continues to outpace core inflation.
The report highlights that many insurers have struggled to offset rising loss costs due to increasing jury awards, particularly nuclear verdicts (those exceeding $10 million).
AM Best anticipates that personal auto insurers will remain focused on controlling claims costs more effectively, improving underwriting processes, and streamlining claims handling to mitigate the pressure on their operating margins.
