[May 01, 2014]

Fitch: Commercial Auto Insurance Sector Remains Pressured

The commercial automobile insurance segment of the U.S. property/casualty insurance industry reported a third consecutive year of underwriting losses with a combined ratio of 106% for 2013 compared with 107% for 2012, according to Fitch Ratings.

Results in this key segment are trending differently from other lines. For example, the property/casualty industry aggregate posted a significant underwriting gain for 2013, the market's best year since 2007.

Commercial auto underwriting losses are a function of multiple years of significant price deterioration prior to 2011, combined with an erosion of underwriting standards to retain business in the economic downturn of 2008-2009. Commercial auto policyholders continue to face pressure in the current slow-growth environment, which limits expansion in commercial auto underwriting exposures.

Additionally, recent increases in claims severity have sparked a shift towards loss reserve deficiencies. Incurred losses in accident years 2010-2012 have developed unfavorably since inception for the industry in commercial auto. Further recognition of inadequate loss reserves is likely to hinder near-term earnings improvement in this segment.

Premium rate increases in commercial auto insurance have been more muted versus other underperforming market segments since the commercial lines underwriting cycle turned in second-half 2011. Signs that the momentum for further price hikes is waning reduce the likelihood that the commercial auto line will quickly revert to an underwriting profit position in 2014.

Despite poor industry performance in commercial auto, a number of insurers contnue to report strong underwriting results in this line. Among the leading commercial auto insurance writers, Berkshire Hathaway Group, Progressive Corp. and Erie Indemnity Company were the most profitable in the segment during 2009-2013.

For more information on this topic, please see our special report, "Commercial Auto Insurance Market Update: Underwriting Losses Accumulate," available at www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: Commercial Auto Insurance Market Update (Underwriting Losses Accumulate)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747366

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