US Personal Lines Insurance Retains Negative Market Segment Forecast

Negative Market Segment Forecast

Negative Market Segment Forecast – For the US personal lines insurance segment through 2024, AM Best is continuing to project a negative market segment forecast.

This decision was first made in September 2022 and was motivated by the ongoing decline in the personal auto and homeowners insurance markets, which was exacerbated by inflationary pressures driving up loss costs.

The agency’s latest report, titled “Market Segment Outlook: US Personal Lines,” underscores the challenges personal lines insurers face in achieving rate adequacy. The report also highlights increased reinsurance costs, driven by heightened catastrophe loss volatility and a rise in secondary peril activities.

In spite of these obstacles, the report highlights some advantages. Among the insurers in the market, these include high levels of risk-adjusted capitalization supported by ample liquidity. Positive contributions also come from increases in investment yields and initiatives to achieve rate adequacy, which are made possible by certain regulatory leniencies.

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“However, the capital cushion has eroded for some insurers,” AM Best senior director Richard Attanasio said. “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.”

 Many carriers in the segment are pursuing rate adequacy to fight increased loss cost severity, said Chris Draghi, assistant director at AM Best. It is difficult for them to keep ahead of these trends, though.

The report goes on to say that higher death rates, higher repair costs for newer cars, higher used car prices, disruptions in the labor market and supply chains, and rising medical costs are all contributing factors to the increase in loss severity for auto insurance in an overall inflationary environment.

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Moreover, the personal lines segment continues to be impacted by significant catastrophe-related losses, as evidenced in 2023. Notable events include Hurricane Idalia, the Lahaina wildfire disaster in Hawaii, California flooding, severe winter weather in the Northeast, and convective storms causing wind, hail, and tornado damage, particularly in the Midwest and South. These events have continued to contribute to the sector’s challenges.

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