Personal-auto insurers have continued to implement rateincreases to counter weakness in the segment's performance over thelast several years, but unusual catastrophe losses and rising claimseverity prevented strong improvement in underwriting performancefor 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 adds, “The industry experienced severeweather conditions in several areas of the country during each ofthe last three years. Hail storms, tornadoes, wind, and floodingcontributed to catastrophe losses each year, as well as SuperstormSandy in late 2012 and Hurricane Irene in 2011. In contrast tohomeowners' insurance, auto insurance with comprehensive coveragetypically covers damage caused by flood. As a result, Sandy led tohigher levels of auto losses than past storms.”

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.”

Fitch adds that the Hanover Insurance Group has attributedhigher industry severity trends to longer duration and slowerdevelopment of claims due to litigation in a depressed economy.Fitch says it believes claims severity will likely continue topresent challenges as medical inflation outpaces generalinflation.

On a positive note for insurers, 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.”

As for the segment's top writers, Fitch says that “State Farmcontinues to dominate the market with approximately 20 percent ofauto premiums, nearly double the second largest writer, TheAllstate Corp.