The industry statutory personal auto combined ratio of 98% in 2018 represented the first year with a sub 100% combined ratio since 2007. Segment results in 2019 should match prior year levels, but Fitch projects a return toward break-even results in 2020.
"The private passenger auto insurance market forged a strong recovery in underwriting profits in the last two years," said Jim Auden, Managing Director. "A return to more intense competition with flatter pricing and continued claims severity concerns will lead to future deterioration in results."
Following several years of significant price increases, premium rate changes have now flattened considerably in the personal auto space. CPI data from the Bureau of Labor Statistics on motor vehicle insurance costs show a reduction of -0.2% year over year in November 2019, compared with a 5% increase for full year 2018. Large public auto underwriters continue to report premium rate increases in quarterly disclosures, but at a lower magnitude than in the recent past.
Shifts in pricing trends are leading to slower written premium growth. Industry statutory direct premiums in personal auto at nine-months-ended 2019 were up 4.3% relative to the prior year period, down from 6.6% growth in fiscal 2018.
Flatter growth reduces the chance that revenue keeps pace with loss cost trends going forward. Based on publicly held underwriter results, auto claims frequency trends continue favorably, but severity trends are less predictable with bodily injury and physical damage costs moving upward in 2019.
Despite the anticipation of challenges to come, Fitch believes a return to the more substantial personal auto underwriting losses experienced in 2015-2016 does not appear imminent.
For more, please see Fitch's report, "Personal Auto Underwriting Performance: Results Likely to Peak in 2019," available at www.fitchratings.com.