Progressive has a competitive edge over long-term players in the commercial auto insurance market and national carriers outpace regionals on workers compensation profit measures, according to a new report from Guy Carpenter.
“Competition and change are the only certainties” for property/casualty insurers and reinsurers, the introduction to the “Risk Benchmarks Research” report says, promising to provide insight into P/C market trends for strategic decision making in the ninth annual analysis.
Specifically, the report provides individual analyses of underwriting profits and underwriting volatility for commercial lines like auto, workers comp, property and commercial multiple peril, and personal lines like homeowners and auto, with metrics for these lines calculated for different industry segments, including top 15 writers, national writers, regionals (Northeast/Atlantic, Southeast/Gulf, West, Midwest), multi-regionals, mutual, large public companies. Other slices include commercial-large, commercial-small, E&S, personal-large, property-Florida specialists, workers comp-Calif. Specialists, among others.
“Our deep analysis of industry segment breakouts reveals pockets of volatility and profitability amid the evolving challenges and opportunities faced by carriers as they carve out distinctive strategies and operational initiatives to create opportunities,” said John Trace, CEO, North America, at Guy Carpenter, in a statement about the report.
A graphic in the report showing an array of circles for some of the broader segments arranged by three-year net combined ratios and 20-year volatility reveals that regional Midwest carriers were the most profitable overall, with three-year combined ratios under 100 (about 98) and 20-year volatility of roughly 6 percent (about 2 percent lower than the industry overall).
Also showing less volatility than the industry but higher three-year combined ratios (of 100-101) were large and small personal lines writers, regional Southeast-Gulf carriers and multi-regionals (companies with at least $500 million in 2018 direct written premiums writing in 25-39 states).
At the other end of the spectrum:
- Non-U.S. public companies had both high combined ratios (104-105) and volatile results (roughly twice as high as the P/C industry overall).
- Large commercial insurers—those with more than $2 billion in overall DPW and at least 60 percent in commercial lines—had significant volatility also, at almost 1.5-times the industry) and combined ratios in the 102-103 range.
- While their results were not particularly volatile, the top three mutuals had the worst combined three-year combined ratios (104-105).
“Large Commercials have had to manage across the volatility of primary and excess liability covers that have come under pressure from rising social inflation coupled with a surge in attritional large property losses,” the report explains.
Drilling down by line, Guy Carpenter notes that beyond new mass tort challenges, social inflation trends and thinning reserve redundancies impacting the products liability line, commercial auto continued to steadily drain earnings for top writers, with 40 of the top 100 commercial auto players experiencing combined ratios about 110 in 2018—with 15 of them over 120.
Commercial auto is under new pressure as carriers such as Progressive push into the market with predictive models to attack the small commercial risks in ways similar to their personal lines approach.
Even as the industrywide commercial auto ratio dropped to 105, after multiple years above 110 percent, “rate changes have been met with adverse selection as across-the-board increases drove the marginally better risks into self-insured configurations or to companies with better segmentation plans.”
Calling out Progressive, in particular, the report says that “Progressive’s strong entry into the sole proprietor and small fleet segment of the market will sound an alarm for the unsophisticated insurers and put greater emphasis on creativity and analytics” and usage-based insurance.
A graphic illustrating Progressive’s performance vs. the industry shows Progressive’s combined ratios coming in a 96 or better in each of the last five accident years.
For the workers comp line, the Guy Carpenter analysis doesn’t single out any particular company but instead displays five years of results for national carriers, multi-regionals, regionals and the top 15 writers.
Noting that workers comp “continued a slow drop in profitability across the industry,” Guy Carpenter also says that national carriers and the top 15 carriers “have started to separate themselves from regionals” with the larger players showing better results “as they leverage technology and scale in their pricing, claims and underwriting disciplines. Specifically, in 2018, 52 percent of regionals experienced underwriting losses in workers comp, while 82 percent of the top writers and 81 percent of nationals had 5 percent underwriting margins.
Other key findings in the report include these for other lines:
- Small and package commercial lines have been impacted by deteriorating property results. In addition, results are also suffering as “insurers battle for market share around deployment of advanced analytics and new carriers enter the market.” A portion of the deterioration here is attributable “to companies competing for those accounts that best fit into their straight through processing underwriting approaches.”
- Property lines in excess of $200 billion of written premiums are experiencing pressure due to catastrophes, reinsurer rate actions and atypical reserve adverse development. Insurer strategies here include re-evaluating capital, re-examining how to better leverage reinsurance and thinking about which lines/insureds are driving loss cost increases, rather than broadly passing rate increases to the entire portfolio.
- Personal auto rebounded to profitable levels for the first time in five years in 2018, while homeowners suffered at the hands of catastrophic loss.
More broadly, turning to developments across lines, the Guy Carpenter report says that loss reserve surprises “continue to present themselves in the form of adverse development around lines such as personal auto, commercial auto and homeowners,” while at the same time, “the balance of the industry appears to have reached an inflection point with reserve redundancies close to being exhausted and no longer available to cover new shocks to the system.”