The strong recovery in US auto insurer performance will continue through 2025

The more favorable results from mid-2024 for US personal auto insurers are likely to continue through late 2024 and into 2025, due to significant price increases and moderating claims severity trends that “significantly” improve the segment’s profit level , Fitch Ratings reported.

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

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Fitch warned that companies that are lagging in the turnaround period for auto results may face difficulties in taking the necessary pricing steps while keeping policyholders in a more competitive environment.

“This progress in performance is a key element behind Fitch’s current sector outlook of improvement on the US personal insurance sector,” the report said. “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 previous levels. GAAP filings for a group of nine public insurers reporting quarterly personal auto segment results indicate that the aggregate segment’s combined ratio (CR) for 1H24 fell sharply to 89%, compared to 100% in 1H23 and 101% in 1H22.”

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

“Trends in personal car loss severity are easing after more than two years of strong increases that began in 2H21 due to pandemic-related supply chain and labor market disruption,” Fitch said. “Higher overall inflation has also greatly increased costs for auto parts and components, repairs, medical costs and used vehicles. Leading auto writers reported significant reductions in auto claims severity in mid-2024. PGR’s personal auto severity fell to 1% in 1H24 from 11% in the year-ago period. GEICO’s loss severity for physical damage claims fell to 8%-10% in 1H24 from 21%-23% in 1H23.”

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According to Fitch, successive significant increases in motor vehicle premium rates were another factor driving the recent improvement in underwriting. According to CPI data, motor insurance costs rose by 50% overall for the three-year period from July 2021 to July 2024. Price increases showed slight signs of moderating, with a 19% increase year-on-year in July 2024 versus an increase of 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.