A.M. Best: Auto-Insurance Stability Offsets Property-Line Volatility for Personal-Lines Insurers

More frequent and severe weather-related events are creating a volatile business environment for the property-insurance line, but favorable results in auto are offsetting some of the negative impact, leading A.M. Best to maintain a stable outlook for the personal-lines segment.

“Although property line volatility continues to be a drag on overall results, it has not materially weakened the segment’s overall capital position, and auto results continue to be stable despite some margin compression,” says A.M. Best in its latest Review/Preview analysis.

For the property line, A.M. Best says it expects more of the same with respect to the weather. “Whether it’s an issue of frequency, severity, or sometimes both, the expectation is that regardless of the underlying causes, the erratic and volatile weather patterns experienced over the past few years will continue, and significant rate increases cannot be the only action taken to stabilize results.”

The ratings agency notes that carriers are, in fact, thinking beyond just rate increases, implementing risk-management initiatives such as mandatory wind/hail deductibles, percentage hurricane deductibles, and roof limitations based on the roof’s age and condition. “In addition, improved geocoding, greater understanding of risk concentrations and adherence to stricter underwriting guidelines has partially mitigated overall losses,” A.M. Best says.

The analysis also points to continued to sophistication in how property risks are priced. homeowners. “This is particularly true regarding the ongoing development and expansion of by-peril pricing modules and more granular pricing metrics across this line of business,” says A.M. Best. 

The analysis notes that as of the 2012 third quarter, personal-lines insurers had been reporting “considerable improvement” in results due to a lack of catastrophe losses relative to 2011. “However,” the ratings agency says, “with Superstorm Sandy making landfall in the fourth quarter, the potential for a ‘below-average’ catastrophe loss year was quickly erased.”

Despite the more frequent and severe weather events, A.M. Best says the personal-lines segment remains adequately capitalized, and the ratings agency attributes that mainly to results in the auto line. The ratings agency says it expects auto to continue to produce results similar to the past several years. 

“Pricing sophistication continues to evolve, particularly through telematics...,” says A.M. Best.

The analysis adds, “Another trend, multi-channel distribution – interaction with potential and existing customers across a wide spectrum of distribution outlets – remains a key differentiating factor for a large portion of the personal-auto market. In addition, brand awareness programs and marketing budgets are expected to continue growing at the current pace.”

The line does have its challenges though. A.M. Best notes that while loss-cost trends “remain generally moderate,” there is some pressure from rising medical and auto-repair costs.  “In addition, Sandy’s effect on the automobile line was somewhat higher than anticipated, which may drive movement to additional risk-management attention on auto’s exposure to catastrophe loss,” states the analysis.

A.M. Best says its stable outlook implies that most rating actions in 2013 will be affirmations and that the number of positive rating actions will keep pace with negative rating actions.

About the Author
Phil Gusman, PropertyCasualty360.com

Phil Gusman, PropertyCasualty360.com

Phil Gusman is Managing Editor of PropertyCasualty360.com. Prior to joining National Underwriter in 2008, he was Editor of Insurance Advocate. Gusman has also served as Associate Editor of Crackdown!, an insurance fraud publication, and Assistant Editor of Empire State Report, which covers New York politics. He graduated in 2002 from Plattsburgh State University in New York. Gusman may be reached at pgusman@summitpronets.com. Follow him on Twitter: pgusman and PC360_Markets


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