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FOR IMMEDIATE RELEASE
OLDWICK - APRIL 01, 2019 11:50 AM (EDT)
Years of inadequate pricing and reserving in the U.S. commercial automobile segment, along with increasing litigation and other claim costs have resulted in a premium base that is unable to keep pace with deteriorating loss frequency and severity trends, according to a new AM Best special report.
The analysis in the Best’s Special Report, titled, “U.S. Commercial Automobile Results Continue to Deteriorate,” states that not only has the commercial automobile line generated the worst results among the major commercial insurance lines in recent years, but the gap between the companies that outperform the industry and those that underperform is substantial. On a calendar year basis, commercial automobile has incurred an underwriting loss every year from 2011 through 2017, with net incurred losses growing 74% since the end of 2010, while net earned premium grew approximately 40%, according to the report.
Adverse reserve development has contributed significantly to increasingly larger net underwriting losses over the past six years. One-year reserve development more than tripled from the year-end 2012 total of $541 million, to a high of just under $1.9 billion in 2016, followed by $1.6 billion of adverse development in 2017.
AM Best analyzed the 2017 performance of the U.S. property/casualty insurers, which provide both liability and physical damage coverages for commercial insurers—those generating at least $500,000 in annual commercial automobile net premiums written (NPW). The result was that the top quartile had excellent median combined and operating ratios, 77.7 and 74.1, respectively. At the other end of the spectrum, the median corresponding combined and operating ratios for insurers making up the fourth quartile were 138.0 and 131.2—a difference of more than 60 percentage points in the case of the median combined ratio. On a net basis, both loss and combined ratios have trended unfavorably for commercial automobile for several years now, reaching a decade high level in 2017, with further deterioration likely for 2018.
Various indicators suggest that writers of commercial automobile insurance still face numerous obstacles, and most of these insurers are experiencing the negative effect of writing this line of coverage on their overall results. However, AM Best expects the line’s overall results to be unprofitable in 2019, despite several years of rate increases, along with other risk selection and underwriting modifications. Prior years’ loss reserves continue to adversely affect current calendar year results. For 2019, it is probable that companies will continue pushing for additional rate increases, which are more commensurate with prevailing exposures and will bring the line closer to rate adequacy amid the ongoing escalation in current year loss costs.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=284139 .
AM Best is a global rating agency and information provider with a unique focus on the insurance industry.