Fitch: Commercial Auto Insurance Line Considered a Chronic Underperformer

May 5, 2016

U.S. commercial auto insurance has evolved into a chronically underperforming product segment for U.S. property/casualty insurers, according to Fitch Ratings. While the P/C industry has reported three consecutive years of significant underwriting profits, the commercial auto market as a whole reported an underwriting loss for the fifth consecutive year in 2015.

At the same time, a number of companies continue to do well in this line.

Underwriting losses have accelerated with the segment statutory combined ratio rising to approximately 109 for the latest year. The commercial auto combined ratio averaged 106 from 2011-2015.

“The poor performance is a reflection of previous overly aggressive pricing in commercial auto and a recent extended period of heightened claims severity, particularly relating to bodily injury claims,” said James Auden, managing director, Fitch Ratings.

Commercial auto written premiums expanded by more than 7 percent in 2015. Insurers have responded to poorer underwriting results with repricing and underwriting actions, but rate changes have not kept pace with loss experience, Fitch says.

While pricing in the broader commercial lines market is now more competitive with most sectors experiencing flat to declining pricing changes, Fitch says commercial auto rates are likely to continue to increase significantly in the near term, which should contribute towards better underwriting results in 2016. A shift to underwriting profits may still be several years away.

“Despite a poor overall performance and weaker industry profits, a number of companies continue to produce significant underwriting profits in this line,” Auden added.

Progressive has grown to become the largest writer of commercial auto business based on net written premiums, while also generating substantial underwriting profits. Berkshire Hathaway Inc.’s rapid recent expansion in primary commercial lines has not prevented the company from generating underwriting profits in commercial auto. Old Republic International Corp. writes larger account trucking business, yet continues to report consistent modest commercial auto underwriting profits.