Personal Auto Primed for Steeper Rate Hikes, But State Farm May Need to Fire First

Personal auto rates appear poised to rise at an accelerated pace, according to one analyst firm, and insurers may just be waiting on the market's top dog to lead the charge.

In an industry update, Stifel Nicolaus notes that a Q2 2012 analysis shows that direct written premiums for auto insurers rose just 2.5 percent year over year. Stifel Nicolaus analyst Meyer Shields, speaking to NU, notes that the 2.5 percent increase is relatively in line with increases seen since 2011's third quarter.

Shields says the slower rate of premium growth compared to other insurance lines is an indication of a healthy market that is not volatile and does not see a lot of dramatic changes. However, loss costs are rising, he adds, and the recent trend of benign inflation “is starting to normalize.”

The Stifel Nicolaus analysis notes that market-leader State Farm reported second-quarter combined ratios of 123.3 in 2011  and 105.3 in 2012—results the firm calls unacceptable. “We think [State Farm] needs to raise rates to remain profitable, which should pave the way for competitors to do the same,” the analysis says. 

The Personal Auto sector was helped by a drop in its direct loss ratio of about 140 basis points in the second quarter, but Stifel Nicolaus attributes this mainly to “suppressed driving stemming from still-high gas prices and unemployment.”

As for individual insurers, Stifel Nicolaus figures show USAA Insurance Group, which insures only military personnel and their families, leading the way for percentage increases in year-over-year direct written premium among the Top 10 auto insurers, ranked by total direct written premiums. USAA saw written premiums increase by 8.6 percent. Berkshire Hathaway ranked second with a 7.8 percent year-over-year increase.

Market leader State Farm saw written premiums increase by 1.3 percent, and second-ranked Allstate saw written premiums decline by 0.3 percent. Allstate was joined in negative territory by Travelers (-4.2 percent) and American Family Mutual (-2.9 percent). 

Others in the Top 10 include Progressive (with a 6.5 percent increase in year-over-year direct written premiums); Farmers Insurance Group (3 percent increase); Liberty Mutual (6.3 percent increase); and Nationwide (2.8 percent increase).