2015 underwriting results decline for top U.S. auto insurers: Fitch Ratings

Underwriting profitability for private passenger automobile insurance has deteriorated in 2015 for many writers in the United States, according to credit rating and research firm Fitch Ratings.

The weakening results through the first nine months of the year reverse a trend in underwriting profitability improvement since 2012, Fitch Ratings said in a statement on Monday. The recent results also run counter to expectations that improvements in vehicle safety technology should lead to reductions in claim incidents.

This year’s weaker underwriting results are attributable to increases in claim severity and more recently, in claim frequency, which may be related to higher miles driven this year amid low gas prices, Fitch Ratings suggested.

Both of these trends are evident in the increase in the weighted average, aggregate personal auto combined ratio – a measure of losses and expenses incurred relative to premiums earned over a period – of the top ten publicly held insurers in the U.S., the statement said. In the first three quarters of 2015, this ratio worsened by 220 basis points to 97.1%.

In total, eight of the companies in the group saw weakening of their personal auto underwriting results in 2015. Two companies had 380 and 390 basis points higher combined ratios versus their first nine-months of 2014, although two other companies had better year-to-date results in 2015 versus 2014.

Offsetting weaker underwriting results was an increase of nearly 8% in GAAP auto net premiums written for the group in year-to-date 2015 results, relative to the same nine months of 2014. All companies in the sample with the exception of one company reported period-over-period increases in net premiums written.

“Auto insurers will face considerable challenges in improving results in 2016, primarily in managing claims costs,” the statement said. “Market information suggests that companies can still get price increases, albeit at a declining percentage of premium. The spread between expenditures on auto insurance and key cost drivers such as vehicle body work, parts and equipment, and medical care remains in insurers’ favour. Still, competition remains fierce with underwriters battling via pricing, enhanced risk selection models, and advertising.”