Fitch Ratings has published a new report commenting on recent personal auto insurance financial results. The report notes that although U.S. personal auto insurers have enjoyed a strong run of operating success and underwriting profitability over the past four years, market fundamentals have deteriorated recently, as revealed in fourth-quarter 2007 auto insurer financial results.
Fitch believes that auto-market profitability will worsen in the near term, and the personal auto line will produce a modest statutory underwriting loss in 2008 as loss costs are expected to continue to increase faster than premiums, and earnings benefits from favorable prior period loss reserve development are likely to decline.
One element working in auto insurers favor is that changes in emerging auto losses can be spotted more quickly given the short-tail nature of the business. Auto insurers’ highly touted, sophisticated pricing models will face a significant test in the near term to react to these trends. The key question is whether the market will collectively respond with appropriate pricing and underwriting remedies, or if market share pressures will prevail, inhibiting corrective actions and fostering further profit reductions.
The full report titled ‘Personal Auto Underwriting Results: Fourth-Quarter Results Foreshadow Challenges Ahead’ is now available on the Fitch Ratings web site at www.fitchratings.com under Financial Institutions then Insurance then Special Reports.