Insurance Industry’s Mixed Signals: A Recurring Cycle or Permanent Change?  March 1st 2024

Profit Recovery Will Vary Among U.S. Personal Auto Carriers: Fitch

Fitch Ratings said it expects underwriting results for U.S. personal auto insurer to continue to improve this year but the pace to profitability will vary.

Auto insurers Progressive and GEICO were the only two of 10 publicly traded carriers analyzed by Fitch Ratings to record a 2023 combined ratio below 100. Progressive, GEICO, and Allstate heavily influenced the aggregate result—a 7-point improvement in combined ratio to 97 versus 104 for fully year 2022—of the group, which represents about 45% of the market.

Allstate posted a better combined ratio in 2023 though it remained above 100 at 103.4 compared to 110.1 for 2022. The combined ratio for Allstate’s auto line was 98.9 in the fourth quarter, compared to 112.6 for Q4 2022, as the insurer continued with its plan to increase auto insurance rates.

The U.S. Bureau of Labor Statistics’ Consumer Price Index had the monthly increase in auto insurance costs at 20.6% in January. Geico and Travelers reported average policy premiums increases of 16.8% and 17%, respectively. Allstate said increases of an average of 13.5% were implemented in 33 locations during the fourth quarter.

State Farm reports $14.1 billion P&C underwriting loss

The number one auto and homeowners insurer in the country reported earned premium of $87.6 billion and a combined underwriting loss of $14.1 billion across its 14 P&C companies. In 2022, State Farm reported an underwriting loss of $13.2 billion on earned premium of $74.3 billion.

The insurer’s auto business recorded an underwriting loss of $9.7 billion, compared to a $13.4 billion underwriting loss in 2022.

The homeowners unit had an underwriting loss of $4.7 billion, compared to a gain of $849 million in 2022.

The 2023 underwriting loss, combined with investment and other income of $5.6 billion, resulted in a P&C pre-tax operating loss of $8.5 billion, which compares to the $8.3 billion loss reported in 2022.

State Farm reported net income of $1.2 billion for its life insurance companies.

Overall, State Farm reported a net loss of $6.3 billion in 2023 compared to a net loss of $6.7 billion in 2022.

In 2023, the insurer added over 3 million policies and accounts and the total count now stands at ~94 million.

Excessive litigation worsens auto insurance costs, says Triple-I

The Insurance Information Institute (Triple-I) recently released a report highlighting how excessive litigation exacerbates the long-standing issue of rising auto insurance costs.

The report outlines how dangerous driving conditions and economic factors have steadily driven up insurance expenses over the years. However, the situation is worsened by aggressive attorneys who escalate litigation costs through various tactics.

Triple-I investigates the strategies employed by these attorneys to increase lawsuits, raise costs for defendants, and secure sizable payouts. They often resort to aggressive advertising methods like billboards, TV ads, and social media, luring clients with promises of large settlements.

Sean Kevelighan, CEO of Triple-I, emphasises the real cost behind these billboard attorneys, stating, “There must be more work done to curb legal system abuse, as auto insurers – both personal and commercial – are seeing significant increases in claims costs when attorneys enter into the picture.”

“There are multi millions of dark money investor dollars entering into the fray to try and get their share. Some of these investors are sovereign funds, which may very well pose increased national security risks,” Kevelighan adds.

DeSantis: Florida insurer of last resort is "not solvent"

**The state-backed insurer has been shedding policies amid a federal investigation into its financial soundness'((

Florida Gov. Ron DeSantis has said that state-backed Citizens Property Insurance is “not solvent” and could be in trouble if a storm hits the state.

DeSantis’s comments come as the federal government conducts an investigation into whether the insurer has enough money on hand for a natural disaster.

Citizens Property Insurance, Florida’s ‘insurer of last resort’, was formed in 2002 to provide windstorm and property coverage to state residents who could not obtain insurance elsewhere.

In an interview on CNBC this week, DeSantis said Citizens was “not solvent, and we can’t have millions of people on that – because if a storm hits, it’s going to cause problems for the state.”

Lemonade CEO Calls 2023 ‘The Year When the Plan Came Together’

Insurtech Lemonade reported a fourth quarter 2023 net loss of $42.4 million and a net loss of about $237 million for the full year but its chief executive said the company has seen “dramatic progress.”

Results were in comparison to net losses of about $64 million and $$298 million the prior year.

Chief Executive and co-founder Daniel Schreiber said during a recent call with analysts that other metrics from 2023’s last quarter, such as a 20% growth in in-force premiums to $747 million and an improved gross loss ratio to 77 (compared to 89 in 2022), made 2023 “the year when the plan came together.”

“Underpinning our results was a steady stream of improvements in our ability to match rate to risk as well as in our operational efficiencies—all these mediated by a singular integrated system that improves and is improved by all our customer interaction,” said Schreiber of the artificial intelligence-powered provider of homeowners, auto, renters, pet, and life insurance.

Lemonade has “transitioned from being a hypothesis to being more evidence-based,” the CEO added. “This isn’t a ‘mission accomplished’ moment, but the progress in 2023 was tangible and material, and it increases our confidence that we’re on track not only to turn cash flow positive next year with plenty of cash in the bank, but to build a large, enduring and profitable business thereafter.”

What's happening to primary rates as reinsurance stabilizes?

As of January 1, 2024, the reinsurance market was showing signs of stabilization after a period marked by challenging treaty renewals. Amid this shift towards normalcy, the property insurance sector is expected to maintain a positive rate environment through the first half of the year, new analysis from Lockton has revealed.

Insurers are expected to keep a close eye on loss trends, applying rigorous underwriting scrutiny. The quota share market is also experiencing growth in capacity, with ceding commissions stabilizing or even increasing. However, Lockton noted that the market for higher-risk coverage continues to face capacity constraints, largely due to the specialized nature of the coverage required.

The report noted that reinsurers have also reported considerable profits over the past year, leading to a comfort level with the pricing and attachment points for catastrophe coverage by the end of 2023. This comfort contributed to the rate stabilization observed at the start of the year.

While the reinsurance market’s improving conditions have somewhat influenced the retail property insurance market, leading to a slowdown in rate increases, the majority of buyers are still experiencing rate hikes.

Tens of thousands hit as yet another insurer looks to leave state

Just under two years ago, Brookfield Asset Management Reinsurance Partners paid $5.1 billion for Texas-based insurer American National Group. The Bermuda-based business was upbeat about the opportunities that its new purchase offered. “We look forward to building on American National’s strong franchise and delivering value for the benefit of all stakeholders, including employees and distribution partners,” the Canadian-educated CEO Sachin Shah told Insurance Business at the time.

However, less than 24 months on, the insurer is set to exit the California market and eight other states due to ongoing losses. The insurer has officially notified the California Department of Insurance of its intention to stop offering homeowner insurance policies by the upcoming fall, with non-renewal notices going to policyholders as soon as August. As of December 2023, American National covered 36,475 homeowner policies in California, generating approximately $37.9 million in premium revenue.

In a formal statement, the company’s spokesperson elaborated on the reasons behind this decision: “This action is driven by significant and persistent profitability issues in the homeowners insurance market,” citing “inflationary pressures driving up costs, increasing claims frequency, and competitive market conditions” as key factors contributing to their financial struggles. The company anticipates these challenges to continue in the future.