US personal lines insurance retains negative outlook – AM Best

Rising loss costs a main driver

US personal lines insurance retains negative outlook – AM Best

Insurance News

By Kenneth Araullo

AM Best is maintaining a negative market segment outlook for the US personal lines insurance segment into 2024.

This decision, initially made in September 2022, is driven by continuous deterioration in the personal auto and homeowners’ insurance lines, compounded by rising loss costs influenced by inflationary pressures.

The agency’s latest report, titled “Market Segment Outlook: US Personal Lines,” underscores the challenges personal lines insurers face in achieving rate adequacy. The report also highlights increased reinsurance costs, driven by heightened catastrophe loss volatility and a rise in secondary peril activities.

Despite these challenges, the report identifies certain positive factors. These include strong levels of risk-adjusted capitalization among insurers in the segment, bolstered by sufficient liquidity. Improvements in investment yields and efforts towards rate adequacy, facilitated by some regulatory relaxations, also contribute positively.

“However, the capital cushion has eroded for some insurers,” AM Best senior director Richard Attanasio said. “Given the persistently high loss costs, as well as increased levels of net retention for homeowners carriers, a return to underwriting profitability for the segment over the near term appears highly unlikely.”

Chris Draghi, associate director at AM Best, added that many carriers in the segment are pursuing rate adequacy to counter rising loss cost severity. However, their ability to stay ahead of these trends is challenging.

The report further details that the increase in loss severity for auto insurance is attributed to higher fatality rates, escalated repair costs for newer vehicles, increased used car prices, disruptions in supply chains and the labor market, and rising medical costs, all within an overall inflationary environment.

Moreover, the personal lines segment continues to be impacted by significant catastrophe-related losses, as evidenced in 2023. Notable events include Hurricane Idalia, the Lahaina wildfire disaster in Hawaii, California flooding, severe winter weather in the Northeast, and convective storms causing wind, hail, and tornado damage, particularly in the Midwest and South. These events have continued to contribute to the sector's challenges.

In other company news, AM Best has updated the ratings of Puerto Rico-based Clear Blue Insurance Group, with the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) being affirmed for Clear Blue’s members.

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