AM Best, Moody’s Rate Personal Lines Insurance Market Outlook as Stable

January 19, 2021

AM Best kept its stable market segment outlook on the U.S. personal lines insurance segment for 2021, citing the segment’s strong risk-adjusted capitalization and profitable underwriting performance in private passenger automobile, as well as underwriting actions benefiting the homeowners segment.

In its recent Best’s Market Segment Report, “Market Segment Outlook: U.S. Personal Lines,” AM Best notes that despite rising reinsurance pricing, catastrophe losses and the economic impact from COVID-19, surplus levels continue to support the underlying risks for most personal lines carriers. Despite the significant volatility in the equity markets in recent years, with the widest negative swing occurring at the peak of the pandemic, most companies in this segment have maintained favorable risk-adjusted capitalization.

AM Best said it expects the private passenger automobile industry to sustain its profitable performance into 2021, owing to ongoing remote work and a reduced number of miles driven.

The rating agency’s analysts also believe that the segment’s performance will be supported by the enhanced use of technology and data analytics to strengthen underwriting, claims handling and rate-making, as well as innovation in all operational phases and in risk management.

U.S. catastrophe activity reached a new record in 2020, with Hurricane Zeta representing the 11th named storm to make landfall; an uptick in wildfires, with latest insured loss estimates for the western U.S. nearing $10 billion; the Iowa Derecho, with an estimated $5 billion in insured property losses; and other sizable wind and hail events. The 2020 wildfires may be at least as costly as the 2017 wildfires in terms of insured losses, given the record number of fires and acreage burnt—including coastal areas that do not usually burn.

Although AM Best expects the impact of COVID-19 to be manageable on personal lines insurers, numerous carriers in the segment still will be affected and longer-term macroeconomic influences are still uncertain. AM Best said personal automobile writers will need to be mindful of regulatory actions resulting from the pandemic that could affect renewals and cancellations, or potentially force coverage.

But insurers’ focus on data analytics, pricing segmentation and exposure management, along with the ongoing leveraging of technology and innovation have positioned this segment to withstand these market challenges, in the rating agency’s view.

Moody’s Outlook

Moody’s Investors Service also offered a personal lines market outlook for 2021 of stable, reflecting auto carriers’ “robust underwriting results amid lower claim frequencies, and homeowner carriers’ prudent response to natural catastrophes.”

Moody’s Investors Service said in its recent annual outlook that the recovering economy also supports the sector’s stable outlook, since property/casualty premiums grow at about the same pace as GDP over time.

“The coronavirus pandemic has had differing effects on personal auto and homeowners business during 2020,” Moody’s Vice President Paulette Truman said. “Pandemic-related business lock-downs and shelter-in-place mandates caused a sharp decline in vehicle miles traveled during the spring of 2020, leading to a decline in auto accident frequencies. Meanwhile, homeowners insurers have incurred above-average losses this year from natural catastrophes.”

Auto insurers have responded to the decrease in driving by returning portions of their premiums to policyholders. Some carriers have recorded these actions as premium reductions, some as underwriting expenses, and others as policyholder dividends. The insurers’ favorable loss experience will likely continue into 2021, even as the economy recovers, leading to heightened price competition among auto carriers.

Homeowners premiums will grow by mid-single digits through 2020-21 based on growth in policies in force and rising rates, said Moody’s. Homeowners insurers have incurred above-average losses this year from hurricanes, tornadoes, severe thunderstorms, a derecho storm and wildfires. Some carriers have reported an offsetting decline in non-catastrophe losses as the coronavirus has kept people home, able to detect and remedy routine problems.