According to Fitch Ratings, the positive performance of U.S. personal auto insurers observed in mid-2024 is expected to persist until the end of 2024 and into 2025. This improvement is attributed to significant price hikes and a decrease in the severity of claims, which have greatly enhanced the profitability of the sector.
The report included a warning: if underwriting profitability improves, it might result in a rapid stabilization of price changes in the future. Additionally, better performance could create competitive challenges and pushback from both policyholders and regulators against any further price hikes.
Fitch cautioned that businesses struggling to improve their automotive performance might encounter challenges in implementing necessary price adjustments, all while trying to keep policyholders in an increasingly competitive market.
The report highlights that “the improvement in performance is a crucial factor contributing to Fitch’s positive outlook for the U.S. personal lines insurance sector.” It adds that a prolonged period of increased auto profits will enable several companies, which suffered significant profit losses in 2022 and 2023, to regain their capital adequacy to previous standards. According to GAAP filings from a group of nine public insurers that disclose quarterly results for the personal auto segment, the overall combined ratio (CR) for the first half of 2024 decreased significantly to 89%, down from 100% in the first half of 2023 and 101% in the first half of 2022.
Almost all the insurers within that category indicated an improvement of 10 points or more in their combined ratio compared to the previous year. Notable reporting outcomes feature Progressive Corp. (PGR) with an 87% combined ratio and GEICO at 82%, making them the second and third largest auto insurers in the country. According to Fitch, only Hartford Financial Services Corp. and Cincinnati Financial Corp. among the nine companies reported combined ratios exceeding 100% for the first half of 2024.
According to Fitch, “The trends in personal auto loss severity are beginning to ease after more than two years of significant increases that started in the second half of 2021, driven by disruptions in the supply chain and labor market due to the pandemic.” They noted that “General inflation has substantially raised the costs associated with auto parts, repairs, medical expenses, and used vehicles. By mid-2024, major auto insurers reported a notable decrease in the severity of auto claims. PGR experienced a decline in personal auto incurred severity, dropping to 1% in the first half of 2024, down from 11% during the same period the previous year. Similarly, GEICO saw its loss severity for physical damage claims fall to between 8% and 10% in the first half of 2024, compared to 21% to 23% in the first half of 2023.”
Fitch reports that a series of significant hikes in auto insurance premiums has contributed to recent enhancements in underwriting performance. As per CPI statistics, the overall cost of motor vehicle insurance surged by 50% from July 2021 to July 2024. However, there are indications that the pace of price increases is beginning to slow, with a 19% rise noted year-over-year in July 2024, compared to a 22% increase observed in March 2024.
According to Fitch, pricing strategies contributed to a 14% increase in net written premiums for this segment compared to the previous year, with PGR experiencing a 22% growth.
