A.M. Best Special Report: Despite Notable Recovery in U.S. Commercial Auto Segment, Uncertainty Remains

OLDWICK, NJ -- December 4, 2015: The U.S. commercial automobile insurance industry showed marked improvement in 2014 from the past couple of years; however, despite the improved performance, the sector faces challenges that could negatively impact results over the near term, according to a new A.M. Best special report.

The Best’s Special Report, titled, “Commercial Auto – Uncertainty Remains,” states that recent improvements in prevailing rate levels and overall pricing show signs of flattening. However, the report also states that more alarming has been the recognition of prior accident year loss reserve deficiencies for the U.S. commercial automobile liability line in 2013 and 2014, in particular, the fact that the reported deficiencies grew in 2014 with the trend appearing to be sustained through the first half of 2015.

Nevertheless, the report also shows that operating profitability for the U.S. commercial automobile industry has shown improvement over the past couple of years, on both a pretax and net basis. Sustaining that profitability in the face of current market headwinds will be a challenge that commercial auto insurers have to face.

In 2014, the U.S. commercial automobile insurance industry exhibited notable improvement, driven by a lower underwriting expense ratio that supported an improvement in the industry’s loss ratio over the past two years. The industry has experienced a four-year period of growth in net premiums written that has aided expense ratios and bottom line profitability. The increase in premium in 2014 helped produce a calendar year combined ratio of 103.3, compared with 2012 and 2013 combined ratios of 106.9 and 106.7, respectively. On an accident year basis, the improvement appears more dramatic as combined ratios fell below 100% in the most recent two years.

The moderating trend regarding average rates and emerging reserve deficiencies notwithstanding, the underwriting expense ratio for the U.S. commercial automobile industry has been trending favorably. In addition to maintaining underwriting discipline, insurers will have to manage capital prudently to successfully deal with changing competitive conditions and emerging issues impacting the U.S. commercial automobile market, such as loss severity, usage-based insurance and increased use of Uber, Lyft and other ride-sharing services.

For the full copy of this special report, please visit Special Report.