Auto insurance inflation showed a slight rise in April, portending collapsing margins in personal lines, a leading analyst said today.

Consumer Price Index auto inflation data for the month of April rose .3 percent on a year-over-year basis and was down from .4 percent in March.

Bank of America securities analyst Brian Meredith said the figures represented the disinflationary trend that began when auto inflation peaked at 9.5 percent in September 2002.

“Given favorable frequency trends, healthy underwriting margins and increasing price competition, the result this month is in line with our expectations,” Mr. Meredith wrote.

The spread between price increases and loss cost inflation remains negative as all the components of personal auto loss severity are running well above pricing.

“Coupled with stabilizing frequency trends, we believe we are entering a period of margin compression for personal auto insurers,” Mr. Meredith wrote.

But the margin compression won't happen right for all companies, as Mr. Meredith noted in his note on Progressive results.

“Despite continued competitive pressure on premium in force, the company grew the top line faster than expected,” Mr. Meredith wrote.

Margins remained attractive and the company continued to generate excess capital, he added.

The Mayfield, Ohio-based company reported net written premium growth of 4.2 percent along with an annualized net operating ROE of 29.6.

Special Reports /

Margin Compression Seen For Auto

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