Personal-auto insurers have continued toimplement rate increases to counter weakness in the segment'sperformance over the last several years, but unusual catastrophelosses and rising claim severity prevented strong improvement inunderwriting performance for 2012, says Fitch Ratings.

In a recent analysis, “Personal Auto Underwriting Performance,”Fitch says, “While market fundamentals in the personal autoindustry improved modestly in 2012, results vary considerablyacross companies.”

A chart outlining 10 auto insurers' combined ratios in 2011 and2012 shows five carriers reporting improved figures in 2012 whilefive reporting some deterioration. 

Part of the volatility was weather-related, Fitch says: “Naturalcatastrophe related losses rose inordinately in 2012 due toSuperstorm Sandy in the fourth quarter. The large flood-relatedlosses in densely populated areas led to higher auto-related claimsthan past storms. boosting auto insurers' combinedratios.” 

The ratings agency further notes that the industry experiencedsevere weather conditions in several areas of the country duringeach of the last three years: Hailstorms, tornadoes, wind, andflooding contributed to catastrophe losses each year, as well asSuperstorm Sandy in late 2012 and Hurricane Irene in 2011. “Incontrast to homeowners' insurance, auto insurance withcomprehensive coverage typically covers damage caused by flood. Asa result, Sandy led to higher levels of auto losses than paststorms.”

The report also notes that auto insurers are dealing with risingclaims costs, due mostly to rising severity for bodily-injuryclaims. “Many auto writers experienced mid-single-digit increasesin severity during 2012, following a more modest uptick in 2011 andnear flat claims severity in 2010,” says Fitch. “According to theBureau of Labor Statistics, the cost of medical-care servicesincreased 3.1 percent during the 12-month period ending January2013, which leads to higher bodily-injury-claim costs forinsurers.”

On a positive note for carriers, claim frequency has been flatto down during the past three years. “Several factors can influencethe degree or direction of claim frequency trends, such as thenumber of vehicles per household, miles driven, gasoline prices,greater vehicle safety, and unemployment rates,” says Fitch.

Should catastrophes revert to historical norms, Fitch expectspricing improvements to promote “a modest underwriting profit in2013.”