NU Online News Service, June 14, 3:03 p.m. EDT
Despite a third consecutive year of underwriting losses, Fitch Ratings says it is maintaining its stable outlook on the personal-lines insurance market based on the industry's strong capital position and expectations that market pricing conditions will continue to trend positively.
In a special report, Fitch says the personal-lines market showed a modest deterioration in its 2010 combined ratio compared to 2009. The 102.4 combined ratio, Fitch adds, reflects continued competition, ongoing impact from the economic recession, and losses in the homeowners segment from natural catastrophes. The three straight years of underwriting losses follow five strong years of underwriting profits from 2003-2007, Fitch notes.
However, Fitch says personal lines are "relatively more stable in terms of underwriting and reserve uncertainty compared with longer-tail commercial market segments." Fitch adds that recent premium-growth trends in personal lines are more pronounced than other insurance segments.
But while Fitch says premium-growth trends are expected to remain positive, "a return to underwriting profits is not anticipated in 2011 given the level of catastrophe losses to date and recent accident-year loss performance excluding catastrophes."
For personal auto, the top 10 insurers by market share in 2010 were State Farm, Allstate, National Indemnity, Progressive, Farmers, USAA, Nationwide, Liberty Mutual, Travelers and American Family.
The top players remained largely the same, with State Farm increasing its leading market share. Fitch says National Indemnity Group (GEICO) solidified its third position through its organic growth strategy, while Farmers and Liberty Mutual expanded through acquisitions. Allstate, Nationwide and American Family have lost share over the last five years, Fitch says.
Fitch says the 2010 combined ratio was 101, unchanged from 2009. State Farm posted the highest combined ratio out of the top 10 insurers. Fitch says that, excluding State Farm, the industry aggregate was under 100, at a 99 combined ratio in 2010. State Farm has posted similar underwriting losses over the past three years, Fitch says, noting that the company has been seeking rate increases across many geographic segments recently. National Indemnity posted the lowest combined ratio of the top 10 insurers.
Underwriting performance was weaker in the 12 states that have no-fault laws, Fitch says, and the gap between no-fault and non-no-fault states has been widening since 2006. In 2010, no-fault states reported a loss ratio of 74.5, which was 12 percentage points higher than all other states. Michigan led the way with a direct loss ratio of 115.1.
Net premiums for personal auto were up by nearly 2 percent, Fitch says, which broke a three-year trend of declining premiums.
For homeowners insurance, the top 10 insurers by market share in 2010 were State Farm, Allstate, Farmers, Travelers, Liberty Mutual, Nationwide, USAA, Chubb, American Family and The Hartford.
Fitch says market concentration has remained unchanged compared to 209, and Allstate has seen the most significant decline in market share as the company reduces its exposure in catastrophe-prone areas. Liberty Mutual saw the highest growth in market share due to acquisitions.
Homeowners insurers posted a combined ratio of 106, "essentially unchanged from 2009," according to Fitch. The rating agency says 2011 is expected to be worse for insurers because of high catastrophe losses during the first half of the year. Of the top 10 insurers, American Family posted the highest combined ratio, while USAA posted the lowest.
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