A 102.2 combined ratio may not be seem very good. For the U.S. nonstandard auto market, however, it represents a big improvement over past performance.
A new A.M. Best report concluded the market sector turned in a 102.2 combined ratio for the first six months of 2018, versus 107.9 in 2017 and 109.9 in 2016. That also compares to a 10-year average of 106.5.
The ratings agency attributed the improvements to a number of factors, including carrier underwriting initiatives such as ongoing rate increases. Nonstandard auto insurance policies are sold to high risk drivers who struggle to obtain standard coverage.
“As the auto premium base expanded in 2018, loss cost trends and severity increases have mostly been in line with companies’ expectations,” A.M. Best said. “The insurers followed in this report also continued to generate pretax and net income through the first half of 2018, with first-half earnings that more than doubled year over year.”
Direct premiums written for U.S. nonstandard auto have grown steadily from $12 billion in 2014 to $14.7 billion in 2017 and $15 billion in the first six months of 2018, A.M. Best said.
As always, there are caveats.
“These recent trends are indicators that the number and magnitude of rate increases can be expected to subside somewhat over the near term, especially given the high level of competition in the personal auto market,” the A.M. Best report notes. “Medical severity and auto repair costs for increasingly complex cars, however, are likely to continue rising. History has shown that a change in auto frequency, positive or negative, can have a noticeable impact on the underwriting profitability of automobile-related lines.”
As well, A.M. Best pointed out that nonstandard auto premiums often decline during recessions, with the lower premium adversely affecting profitability.
Meanwhile, the nonstandard policy market is facing other shifting market trends as larger national private passenger auto insurers enter the market, by way of “more efficient technology platforms.”
“The resulting competitive pressure on smaller writers in their composite has prevented some from being able to maintain their presence in the marketplace, leading to some being acquired by the national writers,” A.M. Best said.
The full A.M. Best Market Segment Report is “Early Signs of Improvement in the Nonstandard Auto Market.
Source: A.M. Best