Negative Outlook Continues for U.S. Personal Lines Insurance Segment Facing Challenges in 2024

The U.S. personal lines insurance segment continues to navigate a complex landscape as it grapples with a combination of adverse factors. As a result, AM Best announced that it would be maintaining a negative outlook on this market segment for 2024.

Personal auto erosion triggered initial outlook change

As outlined in the rating agency’s Best’s Market Segment Report: Market Segment Outlook: U.S. Personal Lines, the main reasons for the ratings agency’s decision stem from the ongoing deterioration in results for the personal auto and homeowners’ lines of business as well as rising loss costs driven by inflationary pressures. In particular, this included maintaining rate adequacy as well

According to Chris Draghi, associate director, AM Best, the initial outlook change in 2020 was driven “…by pressures faced with Personal Auto as erosion in both auto liability and auto physical damage escalated.” However, he noted that the increasing challenges in the homeowner’s market drove the rating agency to downgrade the outlook for this specific market to negative as well.

In the aggregate, Operating Perform for the Personal Lines Composite continues to deteriorate with “a collective combined ratio changing from 97.6 in 2020 to 109.2 in 2022”, in addition to mounting underwriting challenges.

“Many segment carriers continue to pursue rate adequacy in response to rising loss cost severity, but their ability to stay ahead of current trends has been challenged,” he noted.

The increase in loss severity for auto has been driven by higher fatality rates, increased repair costs for newer vehicles, higher used car prices, supply chain and labor market disruptions, and rising medical costs, not to mention the overall inflationary environment.

Looking ahead

Looking towards 2024, AM Best says it expects pressure to continue throughout 2024.

Factors offsetting the negative pressures include solid levels of risk-adjusted capitalization for insurers within the segment with sufficient liquidity. Additionally, improving investment yields and an overall push for rate adequacy with some easing of regulatory hurdles have also contributed positively, according to the report.

“However, the capital cushion has eroded for some insurers,” said Richard Attanasio, senior director, AM Best. “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.”