Given their lower expense structure and the resulting ability to offer more competitive rates to price-sensitive consumers, direct auto writers continue to gain market share, according to Moody’s third-quarter financials review for U.S. P&C insurers.
In response Travelers outlined plans to lower expenses and set rates more competitively, and Allstate experienced its second-straight quarter of sequential auto policy-in-force growth for the first time in six years as they implemented more competitive auto rates and eased homeowners’ pricing after years of price increases. Large-scale agency writers, armed with strong infrastructure and long-standing customer relationships, will address competition from the directs by lowering operating costs and prices, according to the ratings firm.
AIG was the only insurer in Moody’s ratings universe to top $1 billion in net income for the third quarter 2013. ACE Limited came closest, with $916 million, followed by Travelers, with $864 million, Allstate with $656 million and Chubb, with $541 million rounding out the top five.
Overall, net income for Moody’s-rated U.S. P&C insurers in the third quarter of 2013 increased 11 percent year-over-year. The ratings firm said the improvement was driven primarily by lower catastrophe losses and better underwriting margins, with the majority of companies producing an underwriting profit.
Within Moody’s ratings universe, Liberty Mutual ($9.36 billion) had the most net written premiums in the third quarter, followed by AIG ($8.66 billion), Allstate ($7.44 billion), Travelers ($5.71 billion) and Progressive ($4.46 billion) in the top five.
Net premiums increased by 4 percent, a likely byproduct of steadily rising rates, which are outpacing loss cost trends (investment income fell 3 percent) and leading to improved combined ratios. However, while commercial lines reports indicate mid-to-high single-digit rate increases for most segments, Moody’s believes casualty rates may have peaked, “given the market’s abundant capacity.” Also, property rates have moderated, according to Moody’s, with some insurers indicating increased competition for large accounts is affecting rates.
Rate increases in the “highly competitive” personal auto lines moderated as well; having reached rate adequacy in many states with loss cost trends in check, insurers such as Travelers and Allstate have expressed intentions to pursue growth more actively.
Homeowners’ insurers reported mid-to-high single-digit rate increases in Q3, depending on geography. Moody’s said it expects insurers to continue raising rates, increasing deductibles and tightening terms and conditions into 2014 in order to further improve margins.
