Highly profitable sub-90 personal auto combined ratios recorded by 10 publicly traded property/casualty insurers in 2020 don’t look anything like the 106 recorded in 2016. But they’re headed in that direction, Fitch Ratings analysts suggest.
Competitive pricing forces and a return to historical claims frequency patterns as the economy recovers make the 2020 level of performance unsustainable, Fitch Ratings said in a statement yesterday.
Segment results disclosed in GAAP filings of the 10 insurers, representing 42 percent of the total market, averaged 88 for 2020—an 8 point improvement over 2019, Fitch reported.
Sharp increases in 2020 underwriting profits came amid a reduction in driving that led to substantially fewer insurance claims for the year.
Leading the 10-company cohort analyzed by Fitch in terms of profitability were The Travelers Companies, Inc. and The Hartford Financial Services Group, Inc., which both had auto combined ratios below 86 for 2020.
Earned premiums for 10-member group rose only 2 percent in 2020, compared to 9 percent. Part of the difference is attributable to premium returns and rebate programs that carriers put in place to compensate customers for lower levels of driving activity during the pandemic but not all carriers reported the discounts as reductions to premium, according to Fitch, which noted that Allstate and Progressive reported about a 3.7 point increase in their auto expense ratios tied to givebacks.
However they were recorded, the premiums returns and rebased, while substantial, “did not fully offset loss cost benefits derived from lower frequency.”
Fitch noted that auto claims statistics shared by Allstate, Progressive and GEICO show that frequency dropped by 27-30 percent in 2020 for physical damage claims, and by 25-30 for bodily injury. In contrast, in 2019, the frequency declines for these coverages were in the 0-4 percent range.
Still, declines in frequency were partly offset by jumps in claims severity last year: 8-10 percent for physical damage and 12-13 percent for bodily injury. Accidents occurring at higher speeds in less crowded traffic conditions and distracted driving are thought to be contributors to the severity trends.
“Further pricing pressure is likely in response to recent operating success and as companies strive to retain policyholders, which will contribute to a reversion to pre-pandemic performance levels in 2021,” Fitch predicts. “Beyond 2021, a combination of more rampant price reductions as claims frequency moves to historical norms and loss severity trends that fail to subside could lead to sharply weaker underwriting results,” the Fitch announcement said, noting that this was seen as recently as 2016, when the industry statutory combined ratio reached 106.