Profitability Breakthrough in Progressive's Q3 Earnings Shines Light on Rate Increases  October 17th 2023

Progressive Q3 Earnings Skyrocket as Combined Ratio Gets Closer to Goal

Progressive Corp. posted significant improvement in third quarter earnings late last week – with net income of $1.12 billion compared to $124.1 million a year ago during the same period.

Progressive gave a snapshot of it’s Q3 earnings in announcing September results. Net income for the month was $369.3 million, reversing a loss of $684.4 million during September 2022. The Mayfield Village, Ohio-based insurer has a scheduled earnings call on Nov. 1.

In September, Progressive’s combined ratio improved drastically to 89.7 from an unprofitable 116.2 during the month a year ago. The third quarter combined ratio stood at 92.4 from 99.2 in 2022, Progressive said, as net premiums written and earned each increased 20% to $15.6 billion and $14.9 billion, respectively.

Progressive President and CEO Tricia Griffith has said the company’s combined ratio goal is 96 for 2023.

The year-to-date net income was about $1.9 billion compared to a loss of about $105 million a year ago. Compared to the first none months of 2022, net premiums grew 20% to $46.4 billion. The combined ratio as of the end of September was 97.2

AM Best Tweaks State Farm Outlook to Negative After Weather, Regulatory Issues

The AM Best financial rating firm has downgraded its outlook for multiple State Farm insurance companies due to weather losses and regulations that the rating firm said hinder the insurance giant’s ability to adequately raise rates.

“The negative outlooks on the property/casualty rating units primarily reflect recent adverse underwriting experience in the private passenger auto insurance line of business and the challenging regulatory environment that have constrained the ability of State Farm (as well as its industry peers) to increase premium rates in a timely fashion, along with continued elevated catastrophe-related loss experience in many parts of the country,” AM Best said in a news release.

The downgrades, from stable to negative, were for State Farm Mutual Automobile Insurance Co. and its affiliates, State Farm Fire and Casualty Co. and State Farm County Mutual Insurance Co. of Texas, based in Richardson, Texas. AM Best referred to those companies as the State Farm Group.

The rating firm also revised its outlook to negative for State Farm Florida Insurance Co., based in Winter Haven, Florida, and for MGA Insurance, based in Dallas. It also revised the outlook to negative for State Farm General Insurance and for State Farm Life Insurance and State Farm Life and Accident Assurance Co.

“The weather-related losses, particularly from hurricane, winter and convective storms, as well as wildfires, have put further pressure on the group’s operating performance assessment,” AM Best officials said in the press release.

Down, Down, Down….AM Best P/C Downgrades Outpacing Upgrades

The number of rated property/casualty personal lines insurers that had their credit ratings downgraded by AM Best more than doubled to 21 in the first-half of 2023, compared to 10 in first-half 2022.

Additional downgrades of 10 commercial insurers and one reinsurer brought the P/C insurance industry total to 32 for this year’s first half, compared to 18 in total for last year’s first half, the rating agency said in a report last week.

Together, the P/C downgrades accounted for 9.1 percent of all AM Best’s ratings actions taken during the first half of this year. In contrast, for first-half 2022, downgrades accounted for 5.2 percent of the firm’s rating actions.

In addition, Best reported that the number of P/C ratings placed under review more than doubled in the first half of 2023 and made up 6.3 percent of total rating actions.

Noting that personal auto insurers accounted for 11 of the 21 personal lines downgrades, AM Best characterized the prospect of a near-term return to underwriting profitability as “unlikely” for personal auto carriers. Personal lines downgrades also reflected weather-driven deterioration in operating performance.

Weather, rising claims frequency and severity and supply chain issues dented both operating results and capital levels of personal lines insurers, the report said.

Responding to Rising Social Unrest

Building resilience in an unpredictable risk landscape

Executive summary

Social unrest, strike action and political activism are on the rise across the globe, triggered by inequality and the growing concern that social liberties are being eroded. This scenario presents significant challenges and risks for governments, business operators and communities across the political divide.

Historically, insurance protection for losses relating to strikes, riots and civil commotion (SRCC) has been available under "All Risks" policies, subject to exclusions and specific terms being applied.

The growing frequency, scale and severity of SRCC events has led underwriters to re-evaluate their risk appetite, with tighter scrutiny on terms, exclusions and policy wordings, along with country-by-country consideration for global insurance programs. As the terrorism and political violence insurance market continues to mature, insurance specialists and risk managers continue to play a critical role in providing an effective response to meet the evolving needs and expectations of an unpredictable risk landscape.

• Since 2017, more than 400 significant anti-government protests have erupted worldwide, according to the Carnegie Global Protest Tracker. The speed at which events are erupting, the ability to amass and organize, and the more globalized nature of discontent are changing how the threat is perceived.

• Businesses from all industries and of all sizes have become collateral damage in the wave of civil commotion, strikes and political violence events being reported across the globe. The importance of having a robust crisis management and critical response plan in place is heightened — a plan that equips business operators to stress test their insurance programs, ensures they're fit for purpose and allows normal business operations to continue in the event of a claim.

• A specialist political violence insurance market offers broad coverage for a range of events, encompassing smaller scale strikes and protests through to acts of terrorism and violence.

Arthur J. Gallagher & Co.

More Americans find it difficult to afford home insurance as climate change disasters drive rate hikes

A growing number of Americans are finding it difficult to afford insurance on their homes, a problem only expected to worsen because insurers and lawmakers have underestimated the impact of climate change, a recent report said.

A report from First Street Foundation released in September said states such as California, Florida and Louisiana, which are prone to wildfires and damaging storms and flooding, are likely to see the most dramatic increases in premiums.

But the fire that destroyed the Hawaiian community of Lahaina on August 8, as well as the historic flooding that happened in Vermont and Maine in July, are examples of events that could drive up insurance costs for homeowners in other states.

“If you’re not worried, you’re not paying attention,” said California Sen. Bill Dodd, whose district includes the wine-country counties devastated by the LNU Complex fires in 2020.

First Street estimates, factoring climate models into the financial risk of properties in its report, that roughly 39 million properties — roughly a quarter of all homes in the country — are being underpriced for the climate risk to insure those properties.

“Some places may be impacted very minimally, but other places could see massive increases in insurance premiums in the coming years,” said Jeremy Porter, head of climate implications at First Street and a co-author of the report.

First Street, a New York-based non-profit, has been a to-go researcher on the financial implications of climate change for years. Their research is used by Fannie Mae, Bank of America, the Treasury Department and others for understanding the potential risks to properties.

Lloyd’s new data tool highlights extreme weather vulnerability 

Lloyd’s has launched a tool that models the economic impact of extreme weather events that lead to food and water shocks.

The Cambridge Centre for Risk Studies is working with Lloyd's to help businesses and policymakers explore the potential impacts of the global economy becoming increasingly subject to systemic threats.

In the first in a series of nine systemic risk scenarios, researchers explored how an increase in extreme weather events, linked to climate change, could lead to crop failures in key production regions of rice, wheat, corn and soy, and significant global food and water shortages.

Societies around the world could see widespread disruption, damage and economic loss, promoting major shifts in geopolitical alignments and consumer behaviour.

Only a third of the global economic losses caused by extreme weather and climate-related risks are currently insured, it says. The research aims to help risk owners better understand their exposure to critical threats such as extreme weather, and the role of risk mitigation and insurance protection to build resilience.

Lloyd’s CEO John Neal says the market is committed to building better resilience and protecting customers against increasing climate threats.

“It is critical that our market continues to collaborate with the public and private sectors to address this challenge at scale and ensure a sustainable future,” he said.