AM Best downgrades outlook on personal auto insurance market – report

AM Best has revised its market segment outlook on the US personal automobile insurance market from stable to negative. Best cited a significant deterioration in carriers’ results as of Q2 2022, driven by ongoing inflationary pressures and corresponding challenges in rate adequacy, as the reason for the downgrade.

In its latest Best’s Market Segment Report, “Market Segment Outlook: US Personal Auto,” AM Best estimated a deterioration in the private passenger auto liability loss ratio through the first half of 2022 of more than 11 percentage points to 71.5, from 60.1 in the same period last year. The auto physical damage loss ratio rose by approximately 16 percentage points.

“Many carriers continue to pursue rate adequacy in response to post-pandemic lockdown frequency and severity levels, but their ability to stay ahead of current trends has been a challenge,” said Richard Attanasio, senior director at AM Best. “The timeliness and effectiveness of sought-after rate increases has been varied based on regulatory jurisdictions.”

Previously, the regulatory response to rate adequacy needs hasn’t been a significant barrier to generating adequate operating results, AM Best said. However, the report found that the magnitude of rate need has spiked, challenging carriers’ ability to maintain adequate operating results. While inflationary trends will eventually level off as supply chain and labor challenges decrease, there is still a significant amount of uncertainty about how long this rate-challenged environment will last.

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The increasing use of telematics and usage-based insurance may help mitigate loss frequency, AM Best said. However, it is unlikely to have any meaningful impact in the near term.

“Given the persistence of increasingly high loss costs, the segment’s ability to return to underwriting profitability in 2022 appears highly unlikely,” Attanasio said.

The report also pointed out that investment market volatility has put pressure on results, although many auto insurers tend to hold high-quality investments with a long-term investment horizon, and are therefore unlikely to realize these losses.