Market share rankings barely changed among the largest private auto insurers in 2016, as direct written premiums increased while the industry continued to experience escalating losses.
The average combined ratio for the top 20 private auto insurers climbed to 106.62% for 2016 from 103.95% the year before, according to SNL Financial data.
Just two insurers in the 2016 analysis managed to record combined ratios beneath 100% in 2016, down from six in 2015.
Deteriorating loss trends industrywide have resulted in premium growth in personal auto outpacing rate increases in other areas of property and casualty insurance, CFRA analyst Cathy Seifert said in an interview.
"Overall, the personal lines auto market has shown premium growth over the rest of the P&C insurance market largely because a number of insurers have put through rate increases," Seifert said.
Auto insurance companies have seen their costs rise due to significant increases in accident frequency and severity. Every insurer in the rankings, aside from Hartford Financial Services Group Inc., saw written premiums increase year-over-year in 2016.
Berkshire Hathaway Inc. and Progressive Corp. held onto their second- and fourth-place rankings, respectively, and were also among those that saw the largest premium increases. Those two were also the only insurers in the ranking with combined ratios under 100%.
Berkshire and Progressive adjusted premiums ahead of the escalation in auto insurance losses in different ways, Keefe Bruyette & Woods analyst Meyer Shields said. Progressive put through single-digit increases each year since 2014. Berkshire's GEICO, on the other hand, suffered its first major loss in recent years during the second quarter of 2015, and subsequently made adjustments, Shields said in an interview. Both companies also operate with relatively low expenses.
"When you combine those rate increases with an expense ratio that is well below average, you can get just under 100%, which is what happened," Shields said.
Other market share leaders like State Farm Mutual Auto Insurance Co., which found itself atop the rankings again in 2016, still need rate hikes to bring their losses down, Shields said. State Farm had the second-highest combined ratio in the table with 117.17%.
Market share rankings may not change any time soon, but premium volumes could shift if the low-cost insurers whose rate hikes are mostly behind them seize opportunities in a bad business environment, Shields said.
"If you're Progressive, and rates are where you need them to be, and now others are raising rates, then you can attract some of their policyholders," he noted.
Growth from attracting new customers is a risky game since the industry's premium rates are apparently trailing loss costs, CFRA's Seifert said. The loss trends are not likely to change any time soon, so adding to policies in force could be a recipe for higher revenues but more losses, she said.
"Increasing your exposure to a line of business where underwriting trends are deteriorating is not always the wisest move, no matter what your top line looks like," she said.
Allstate Corp. has taken a cautious approach to the industry trends, Shields said. It ranked third in market share for 2016, but grew its premiums by just 3.88%, one of the lowest increases on the list. The company has committed to improving its combined ratio, and has done so by increasing rates and reducing expenses, Shields said.
"They also spend less on advertisement and consulting fees and curtailed their new business growth to minimize the loss ratio penalty that is typically associated with growing faster," he added.
Allstate CFO Mario Rizzo recently affirmed that improving profitability in the company's personal auto insurance line has been a top priority since the business environment went into decline in 2015. The company has addressed the trend with a four-point plan.
"It included raising prices, tightening underwriting standards, focusing on claim process excellence, and reducing expenses," Rizzo said, according to a transcript of his remarks made during a March 7 presentation.
The only change among the top 20 private auto insurers was CSAA Insurance Exchange climbing two spots from 15th to 13th, ahead of Hartford and Mercury General Corp.
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