AM Best's negative position on U.S. personal lines extending into 2024
The outlook is driven by a host of factors, including rising loss cost severity and increased losses from secondary perils.
As a new year approaches, AM Best is maintaining its negative outlook for the U.S. personal lines segment as results for personal auto and home insurance continue to deteriorate and rate adequacy remains elusive.
The rating agency’s outlook is driven by rising loss cost severity; higher reinsurance costs and tighter terms; increased losses from secondary perils; higher overall retentions for property lines, which in turn drive higher net losses; and restrictive regulatory environments in some states.
“Given the persistently high loss costs, as well as increased levels of net retention for homeowners carriers, a return to underwriting profitability for the segment over the near term appears highly unlikely,” Richard Attanasio, senior director, AM Best, said in a release.
Personal auto is proving a real drag on personal lines, with AM Best reporting that private passenger auto liability and physical damage account for approximately two-thirds of the segment’s results. Factors pushing auto loss severity up include higher fatality rates, growing repair costs, higher used car prices, increasing medical costs and general inflation.
According to AM Best, the adoption of telematics and usage-based insurance might help manage loss frequency by giving carriers a better view of driving behaviors in real time. However, this is unlikely to deliver any meaningful impact in the near term.
The trend of higher natural catastrophe losses persisted in 2023, while the impact from secondary perils, such as severe convective storms, is becoming more significant.
The rating agency reported that the ability of carriers to absorb the damages from multiple events that unfurl in relatively short time frames will become increasingly important.
While home insurance carriers have attempted to address mounting losses by increasing rates and “inflation adjustment factors,” AM Best reported rate adequacy continues to be challenged. Further, the 12-month policies in home lines make it difficult for carriers to respond to these loss trends.
Although the personal lines segment is going through a tough stretch, AM Best did highlight several factors, including accelerated technology adoption, improving catastrophe risk management practices, sufficient liquidity and an easing of some regulatory hurdles.
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