Fitch Ratings: U.S. Auto Insurer Strong Performance Recovery to Continue Through 2025

More favorable mid-year 2024 results of U.S. personal auto insurers are likely to continue through the end of 2024 and into 2025 due to material price increases and a moderation of claims severity trends “vastly” improving the segment’s profit footing, Fitch Ratings reported.

There was a caveat in the report: a return to underwriting profitability could lead to a sudden flattening of price movement going forward, and that improved performance will eventually lead to competitive pressure and resistance from policyholders and regulators for further price increases.

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Fitch warned that companies that are lagging in the turnaround of auto results may face difficulty in taking needed pricing actions, while also retaining policyholders in a more competitive environment.

“This progress in performance is a key element behind Fitch’s current Improving sector outlook on the U.S. personal lines insurance sector,” the report states. “An extended period of better auto profits will help several companies affected by substantial profit deterioration in 2022 and 2023 to restore capital adequacy to prior levels. GAAP filings for a group of nine publicly held insurers that report quarterly personal auto segment results indicate that the aggregate 1H24 segment combined ratio (CR) moved down sharply to 89%, compared to 100% in 1H23 and 101% in 1H22.”

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Nearly all carriers in that group reported 10 points or better CR improvement year-over-year. Strong reporting results include Progressive Corp. (PGR; 87% segment CR) and GEICO (82%), the nation’s second and third leading auto writers. Only Hartford Financial Services Corp, and Cincinnati Financial Corp. of the nine companies reported segment CRs above 100% for 1H24, according to Fitch.

“Personal auto loss severity trends are subsiding following over two years of sharp increases commencing in 2H21 from pandemic related supply chain and labor market disruption,” Fitch stated. “Higher general inflation has also greatly increased costs for auto parts and components, repairs, medical costs, and used vehicles. Major auto writers reported significant reductions in auto claims severity at mid-year 2024. PGR’s personal auto incurred severity dropped to 1% in 1H24 from 11% in the year earlier period. GEICO’s loss severity on physical damage claims dropped to 8%-10% in 1H24 from 21%-23% in 1H23.”

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According to Fitch, successive sharp increases in auto premium rates were another driver to recent underwriting improvement. According to CPI data, motor vehicle insurance costs rose by 50% in total for the three-year period July 2021 to July 2024. Price increases showed slight signs of moderating with a 19% year-over-year increase in July 2024 versus a 22% change in March 2024.

Pricing actions fueled segment net written premium growth of 14% year-over-year for this group, including 22% for PGR, Fitch reported.