The personal lines industry posted a third straight year of statutory underwriting profit in 2020 with a 97% combined ratio (CR), Net written premiums growth was flat for the year compared with 3% growth in 2019.
The personal auto CR improved by over six points to 92.5% in 2020, the best result in 25 years as the pandemic promoted sharp declines in claims frequency due to reduced driving activity. A gradual return to normal claims frequency and ongoing concerns of rising claims severity point to deterioration in segment results going forward. Competitive forces make it unlikely that market pricing sufficiently responds to further adverse loss cost trends.
Homeowners reported a 2020 CR of 107%, the third underwriting loss in the last four years as an unusual confluence of events including hurricanes, wildfires, a Midwest derecho and a multitude of inland storms sharply boosted insured catastrophe losses. However, continued premium rate increases in loss-effected states and evolving management of risk aggregations support a return to below 100 combined ratios under a period of normal catastrophe experience.
Evolution of insurtech-oriented carriers that have raised significant capital and strive to build adequate premium scale represent a future competitive threat to traditional insurers. However, these companies are currently unprofitable and generating negative cash flows, creating uncertainty whether these firms will have long-term success in personal lines or eventually are acquired by established carriers.
Personal lines insurance is the largest U.S. P/C segment, with $343 billion in 2020 written premiums, 53% of the total industry. Personal auto is the largest segment at 38% of industry premiums, with homeowners at 15%.
The U.S. Personal Lines Market Update Report is available at fitchratings.com.