Allstate, Progressive and more – how do they compare?

Credit ratings agency Fitch Ratings has just released its peer review of US personal line insurers. The study includes Allstate Insurance, Horace Mann Educators, Intact Financial, Mercury General, The Progressive Corporation, and Kemper Corporation.

Driving the results was what Fitch called a ‘sharp deterioration’ in personal auto liability from ongoing higher litigation costs as well as severity issues. The loss ratio moved 11 points higher to 75% from the first nine months of the previous year, with even the historically stable physical damage segment registering an 80% direct loss ratio for 9M2022. Fitch chalked the latter loss ratio to supply chain shortages, high used-car prices, and the tight labor market.

Homeowners’ loss ratio remained at high levels at 76% for 9M2022, similar to the previous year.

The Fitch Ratings peer review noted that risk-adjusted capitalization was the key credit factor for this peer group of personal lines insurers, highly influencing each company’s rating. Their capital adequacy as measured against Fitch Ratings’ ‘prism’ capital model ranged from ‘strong’ to ‘extremely strong’ and scored at or better than the insurer financial strength (IFS) rating, except for Progressive Corporation.

The peer review noted that among personal line insurers, catastrophe risk was a big source of financial performance volatility, although most managed the risk well through reinsurance and by managing risk aggregations in catastrophe-prone areas. Personal lines insurers which principally underwrite auto business – of the six, Kemper and Progressive Corporation had the highest auto-to-home business ratio at 94.8% and 94.4% respectively – tended to have relatively low underwriting risk, giving them the advantage of higher levels of operating leverage. By contrast, the homeowners’ business generally required lower levels of operating leverage.

All six peers maintained leverage at the high end of the US property/casualty industry.

Generally, because of the short-tail nature of auto insurance products, personal auto insurers had investment portfolios consisting almost entirely of high-quality, short-duration, fixed-income investments. The Fitch Ratings peer review noted that among the analyzed personal line insurers, Allstate Insurance had the highest consolidated risky asset ratio. The six insurers generally maintained modest allocations to various risk assets.