For 2024, AM Best has kept its pessimistic attitude towards the U.S. personal lines insurance sector due to the continuous decline in the performance of personal auto and homeowners insurance and the increasing costs of losses fueled by inflation.
In September 2022, AM Best adjusted their outlook for personal lines to negative, and this opinion has not been modified since then, as indicated in their Best's Market Segment Report, "Market Segment Outlook: U.S. Personal Lines." Additionally, the report highlights personal lines writers' difficulty obtaining rate adequacy, as reinsurance costs have increased due to increased catastrophe loss volatility and secondary peril activity.
The report outlined several positive influences that have counterbalanced the adverse pressures, such as strong risk-adjusted capitalization and liquidity among insurers in the segment, rising investment yields, and more lax regulations in some areas to ensure an adequate rate.
Richard Attanasio, senior director at AM Best, noted that the capital cushions of certain insurers have been reduced. He explained that due to ongoing high loss costs and additional retention for homeowners insurance carriers, it seems improbable that the segment will be able to achieve underwriting profitability shortly.
Chris Draghi, associate director of AM Best, noted that numerous segment providers are still attempting to acquire rate adequacy due to increasing loss cost severity. Still, their capacity to keep up with present-day tendencies has yet to be impeded.
Loss severity in auto insurance has risen due to higher death rates, more expensive repairs for modern vehicles, higher cost of pre-owned cars, supply chain issues, labor market turmoil, and increased medical expenses—all exacerbated by inflation.
In recent years, the personal lines segment has been dramatically affected by a trend of catastrophic losses that persisted into 2023. These losses were caused by a variety of disasters, such as Hurricane Idalia, the Lahaina wildfire in Hawaii, flooding in California, frigid winter conditions in the Northeast, and damaging thunderstorms (including high winds, hail, and tornadoes, mainly in the Midwest and South).
For the full version of this market segment report, please go to http://www3.ambest.com/bestweek/purchase.asp?record_code=338268