Personal lines company stocks can be expected to underperform in relation to commercial lines carriers, an analyst predicted today.
Bank of America property-casualty analyst Brian Meredith said the December Consumer Price Index showed a slight but steady increase in auto insurance costs with homeowners' rates continuing their downward trend.
Auto insurance inflation rose 1 percent in December year over year, compared to a .9 percent rise in November. Homeowners pricing weakened in the month, going down 2.2 percent on a year over year basis, compared to 1.5 percent in November, said Mr. Meredith.
He wrote that "all of 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," he wrote.
Such a trend usually is a precursor for personal lines carriers' stocks underperforming compared to commercial lines carriers, Mr. Meredith noted.
"We believe the benefit to loss frequency trends from the oil price spike that followed the hurricanes is temporary and improvements in frequency should continue their longer-term trend of slowing," Mr. Meredith wrote.
He cited the fact that State Farm, the nation's largest personal lines underwriter, continues to announce auto rate decreases.
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