Commercial auto insurance in the United States has evolved into a “chronically underperforming product segment” for P&C insurers in the country, according to Fitch Ratings.
While the P&C industry has reported three consecutive years of significant underwriting profits, the commercial auto market reported an underwriting loss for the fifth consecutive year in 2015, Fitch Ratings said in a press release on Thursday. Underwriting losses have accelerated with the segment statutory combined ratio rising to approximately 109% for the latest year. The commercial auto combined ratio averaged 106% from 2011 to 2015.
“The poor performance is a reflection of previous overly aggressive pricing in commercial auto and a recent extended period of heightened claims severity, particularly relating to bodily injury claims,” said James Auden, managing director of Fitch Ratings, in the release.
The ratings firm noted that commercial auto written premiums expanded by more than 7% in 2015. Insurers have responded to poorer underwriting results with meaningful repricing and underwriting actions, but rate changes have not kept pace with loss experience. While pricing in the broader commercial lines market is now more competitive with most sectors experiencing flat to declining pricing changes, commercial auto rates are likely to continue to increase significantly in the near term, which should contribute towards better underwriting results in 2016. A shift to underwriting profits may still be several years away, Fitch Ratings said.
“Despite a poor overall performance and weaker industry profits, a number of companies continue to produce significant underwriting profits in this line,” Auden added.