Insurance rating agency AM Best has made a significant move by changing the outlook of the U.S. personal auto insurance segment. This shift comes as a result of the improving loss ratios of the top 20 carriers this year. Underwriting results have witnessed a remarkable improvement, thanks to insurers' efforts to increase rates in line with loss cost severity trends. AM Best's Impact on U.S. Personal Auto Insurance
Improving Loss Ratios and Underwriting Results
Industry analyst Helen Andersen stated that insurers' actions on a state-by-state basis to address price inadequacy in their individual portfolios led to higher premium amounts. This, in turn, helped bring down the aggregate net loss and loss-adjustment expense ratio in 2023, despite continued increases in incurred losses. The higher premiums also contributed to lowering the line's underwriting expense ratio to its lowest point in a decade.Through the first half of 2024, direct premiums written for the personal auto segment showed a significant growth of 13.5% compared to the same period last year. The segment's first-half 2024 direct incurred loss ratio for auto liability was 71.1, compared to 75.6 for H1 2023. Additionally, the loss ratio for auto physical damage improved by 16 points to 63.2 in 2024.The Role of a More Accommodating Regulatory Landscape
AM Best noted that addressing the need for rate adjustments quickly in the face of inflationary trends can be challenging while waiting for rate approvals. However, state regulators have been diligent in reviewing rate requests and have generally allowed carriers to accelerate the frequency and degree of rate filings. This has provided some relief to insurers and has contributed to the improvement in the personal auto insurance segment.Factoring in surplus gains primarily from strong net investment income, AM Best stated that capital lost in prior years has been replenished. The continued use of technology in claims, underwriting, and distribution by personal auto insurers has enabled them to recover from an overall net underwriting loss of more than $33 billion in 2022 to a loss of about $17 billion in 2023. The rating agency expects insurers to continue their focus on claims costs and effective underwriting.In conclusion, AM Best's shift in the outlook of the U.S. personal auto insurance segment is a positive development. The improving loss ratios and underwriting results, along with the support of a more accommodating regulatory landscape and the use of technology, are likely to contribute to the stability and growth of the personal auto insurance market in the coming years.
