[February 27, 2015]

Fitch: Auto Insurers Maintaining Moderate Profits

Leading personal auto insurance underwriters are remaining moderately profitable, says Fitch Ratings. Full year 2014 GAAP results for nine property/casualty insurers with sizeable personal auto books have thus far been similar to 2013.

The group of nine accounts for approximately one-quarter of industry personal auto premiums and includes Allstate and Progressive, which rank number three and four in market share behind State Farm and Berkshire Hathaway's GEICO subsidiary, the latter two of which will report during the week of March 2.

Underwriting results are unlikely to materially deteriorate in the near term as data compiled by the Bureau of Labor Statistics indicates that expenditure on auto insurance is trending above key repair cost drivers. A lack of stronger underwriting improvement despite this trend is tied in part to underwriting expense pressure from technology investments and advertising costs. Claims frequency has increased with a pick-up in economic activity, decreasing gas prices and more non-catastrophe weather losses.

While pricing information is difficult to analyze on a national basis because rate changes are extremely regional by nature, price competition in personal auto is likely to expand in 2015. Travelers disclosed a 5% renewal premium change in the fourth quarter of 2014, down by approximately half from the fourth quarter 2013. The direction, rather than the magnitude, of Travelers' disclosure is more valuable when generalizing to the sample group.

Personal auto premiums increased by 5.2% during 2014 for the sample group, improving from 3.7% during 2013. A combination of price increases and growing policies in force were responsible for the period-to-period uptick. The increase in auto premiums within the sample group was driven by the larger Allstate and Progressive, while most of the other companies reported less growth or declining premiums.

The aggregate combined ratio for the sample group was virtually unchanged between year ends 2013 and 2014 at 96.0% and 95.9%, respectively. Larger mutual insurers tend to generate weaker underwriting results relative to this group of publicly held insurers. As such,the P/C industry generated a statutory underwriting loss in 2013 with a 101.6% combined ratio, and 2014 results are expected to be similar.

Allstate and Progressive continue to expand premium at a greater pace while reporting superior underwriting profits over the three-year period (2012-2014) than peers in the sample. Kemper, Hanover and Travelers reported the largest improvements in underwriting over the three-year period between 2012-2014, while Cincinnati Financial reported material deterioration in its underwriting results over the same period.

Additional information on recent personal auto insurance results was published in a new Fitch report titled "U.S. Personal Auto Insurance Dashboard."

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: U.S. Personal Auto Insurance Dashboard

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862908

2015 Outlook: U.S. Property/Casualty Insurance (Competitive Forces Promoting Earnings Decline)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=830988

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