Fitch: Homeowners’ Insurance Profits Surge While Personal Auto Stalls

The personal auto insurance industry experienced significant performance deterioration in 2015, and is not showing clear signs of recovery thus far in 2016, according to a new Personal Lines Market Update report from Fitch Ratings. In contrast, homeowners insurance experienced a strong profit run for the last three consecutive years.

The private passenger-auto market industry combined ratio rose to 104.6 percent. Prior to 2015, the market combined ratio remained in a tight band between 101-102 percent for six consecutive years. Claims severity increases have affected auto results for several years, and claims frequency increased for many insurers in 2015. Further modest deterioration through the first half of 2016 (1H16) was evident from Fitch’s review of midyear GAAP results for a group of publicly held companies.

On the other side of the equation, the homeowners line, historically a loss leader, experienced a strong profit run with an average 92 percent combined ratio from 2013 to 2015. Better pricing, catastrophe risk management and below historical-norm catastrophe losses contributed to the success.

“Automobile pricing is moving positively in response to less favorable underwriting fortunes, but will require some time for results to meaningfully improve,” said Chris Grimes, director at Fitch. “Homeowners results deteriorated as reported catastrophe losses in 1H16 were more in line with historical norms.”

As a key product in a large number of insurers’ underwriting portfolios, deterioration of private passenger-auto results can have a significant effect on overall industry performance. However, the recent deterioration in auto underwriting performance in most cases has not affected insurers’ profitability or capital to a degree that leads to negative rating actions.

Overall personal lines market performance (auto and homeowners combined) slipped to an underwriting loss in 2015, and midyear 2016 results suggest near-term improvement in performance is unlikely in Fitch’s view. Competitive dynamics in personal lines insurance have created considerable profit challenges for personal lines underwriters, with unrelenting competition among very large market participants.

“Personal lines underwriters face considerable future fundamental challenges as telematics and price segmentation continue to expand, customer buying practices evolve, and ride sharing and driverless cars alter vehicle usage and safety – affecting the longer-term product and risk offering of auto insurance,” said Jim Auden, managing director at Fitch.

Source: Fitch Ratings