Headwinds strengthen for US commercial auto insurers
Profitability at US commercial vehicle insurers has deteriorated this year in a sign that headwinds for the troubled segment are strengthening, AM Best says.
Underwriting losses hit $US3.3 billion ($5.22 million) last year on a combined ratio of 105.4%.
In the first six months of 2023, the direct incurred liability loss ratio was 72.7%. AM Best says that was the “worst by a wide margin” over previous years.
“Early results for 2023 show continued deterioration for the line, indicating that headwinds are beyond persisting and are strengthening,” the ratings agency says in a new report.
Commercial auto pricing rose by an average 7% in 2022, which AM Best says “may seem like a considerable hike,” but did not keep pace with inflation, which averaged 8%. Aggressive price increases in the first half of 2023, coupled with lower inflation, create a “potential bright spot” in the short term.
Since 2012, commercial auto insurance in the US has been one of the worst-performing lines of business in the national industry, generating a higher combined ratio each year than broader commercial lines.
The combined ratio for physical damage has been below the 100 break-even point since 2018. Lawyer involvement in claims will keep adding to loss severity as well.
More than half the recent underwriting loss can be attributed to adverse loss development on older accident years, which was over $US2.1 billion ($3.32 billion) in 2022. Over half was from accident years 2018 and 2019, suggesting "more may be on the way.”
Most of the top 20 US insurers have generated combined ratios higher than 100% almost every year since 2018 — some for all five years. For most, commercial auto is a small piece of their commercial portfolios and may be a loss leader or a diversifying line that is written as part of a package that includes the more profitable general liability and workers’ compensation coverages, the report says.