AM Best has announced that it is maintaining its negative outlook on the US personal lines insurance segment through 2024 due to continued deterioration in auto and homeowners results and rising loss costs.
The rating agency noted the challenges personal lines insurers face in maintaining rate adequacy, as well as elevated reinsurance costs amid heightened catastrophe loss volatility and increased secondary peril activity.
“Factors offsetting the negative pressures include solid levels of risk-adjusted capitalisation for insurers within the segment with sufficient liquidity,” AM Best said.
The firm also noted that improving investment returns and a general push for rate adequacy with some easing of regulatory hurdles have also contributed positively.
Nevertheless, Richard Attanasio, senior director at AM Best, said: “The capital cushion has eroded for some insurers. A return to underwriting profitability for the segment seems highly unlikely in the near term, given persistently high loss costs and increased net retentions for homeowners insurers.”
Chris Draghi, associate director at AM Best, said: “Many carriers in the segment continue to pursue rate adequacy in response to rising loss cost severity, but their ability to stay ahead of current trends has been challenged.
AM Best explained that the increase in auto loss severity has been driven by higher fatality rates, increased repair costs for newer vehicles, higher used car prices, supply chain and labour market disruptions, and rising medical costs, “not to mention the general inflationary environment”.
Meanwhile, the rating agency said the personal lines segment “remains vulnerable to an ongoing trend of significant catastrophe-related losses in recent years, which continues in 2023”.
Hurricane Idalia, the Lahaina wildfire disaster in Hawaii, flooding in California, freezing winter weather in the Northeast, and severe convective storms (including wind, hail, and tornadoes, particularly in the Midwest and South) are all known to have caused significant losses.
