AM Best maintains its negative market segment outlook for the U.S. personal lines insurance segment for 2023, owing to a significant deterioration in reported results for personal auto lines of business.
“Given the auto segment’s persistently high loss costs, a return to underwriting profitability in the near term appears highly unlikely.”
The personal lines outlook, which was recently revised to negative in September 2022, indicates that AM Best expects market trends to have a negative impact on companies in the segment, but this does not imply that all companies in the segment have a negative outlook. According to AM
Best’s new Best’s Market Segment Report, “Market Segment Outlook: U.S. Personal Lines,” the personal auto liability and physical damage lines of business account for roughly two-thirds of the segment’s results. Overall results for the personal lines segment, and particularly personal auto insurers, have been negatively impacted by rising loss cost severity caused by inflationary pressures, as well as difficulties in maintaining rate adequacy in the face of a restrictive regulatory environment.
“Personal auto liability and physical damage loss ratios deteriorated relative to year-end 2021 through the first nine months of 2022,” said Rich Attanasio, senior director at AM Best. “Given the auto segment’s persistently high loss costs, a return to underwriting profitability in the near term appears highly unlikely.”
According to the report, personal lines insurers have also been hampered by rising reinsurance costs and potential reinsurance capacity constraints.
Reinsurers are continuing to re-evaluate their portfolios and risk tolerance levels in the aftermath of Hurricane Ian, as well as above-average catastrophe activity and rising secondary peril losses across the United States in recent years. Rising reinsurance costs can put a strain on cedants’ operating performance and balance sheet strength if lower levels of reinsurance protection result in higher net probable maximum losses or net retained losses that are large enough to eat into surplus. Given the regulatory hurdles in some states, primary carriers may struggle to pass these higher costs on to their customers.
Given these pressures, creative use of technology and data analytics to improve underwriting, claims handling, and ratemaking remains critical to meeting profitability targets. Carriers that are slow to address the challenges ahead, or who lack the resources, expertise, or technological capabilities