According to a recent AM Best report, a global credit rating agency, the underwriting results in the US private passenger auto insurance sector have shown a notable trend of stabilization in the first half of 2024. This comes on the heels of improvements witnessed in 2023. The direct physical damage loss ratio for the personal auto segment dropped by a substantial 16 percentage points compared to the same period in the previous year, reaching 63.2. Such an improvement clearly indicates the proactive measures taken by carriers to address the ongoing issues related to loss frequency and severity. Additionally, the direct incurred loss ratio for personal auto liability insurers decreased from 75.6 in the first half of 2023 to 71.1.

Insurers' Actions and Their Impact

Insurers' actions on a state-by-state basis to address price inadequacy in their individual portfolios have yielded significant results. Higher premium amounts have been generated, which has contributed to bringing the aggregate net loss and loss-adjustment expense ratio down in 2023, despite the continued increase in incurred losses. As Helen Andersen, the industry analyst at AM Best, commented, "These efforts have been crucial in improving the overall performance of the personal auto segment." The higher premiums have also played a vital role in lowering the line's underwriting expense ratio to its lowest point in a decade.

Combined Ratio and Performance Improvement

The combined ratio for 2023 was 104.9, which represents a significant improvement from 112.2 in the previous year. Personal auto insurers have managed to enhance their performance through focused underwriting and claims-handling strategies, along with their efforts to raise rates. These measures have helped them navigate through several challenges that have affected recent results. However, regulatory scrutiny of rate increase filings has somewhat slowed down the pace at which some companies have been able to adjust rates to ensure adequacy.

Outlook Revision and Contributing Factors

The revision of the personal auto segment's outlook to stable is attributed to multiple factors. Improved rate adequacy, a more favorable regulatory environment, strong risk-adjusted capitalization, and rising investment yields all play a part. As lower-yielding bonds mature and are reinvested at higher rates, these elements contribute to the overall stability of the segment. Although the US inflation rate has decreased significantly to 2.4% in October 2024 from a peak of 9.1% in June 2022, inflation in insurance claims still continues to outpace core inflation. The report highlights that many insurers have faced difficulties in offsetting rising loss costs due to increasing jury awards, especially nuclear verdicts (those exceeding $10 million).

Insurers' Future Focus

AM Best anticipates that personal auto insurers will continue to focus on controlling claims costs more effectively. They will also strive to improve underwriting processes and streamline claims handling to mitigate the pressure on their operating margins. By doing so, they aim to maintain the stability achieved and further enhance their performance in the future. This requires continuous efforts and adaptation to the evolving market conditions and regulatory requirements.