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US P&C industry posts best Q1 in 17 years on private auto return to profit


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US P&C industry posts best Q1 in 17 years on private auto return to profit

The US property and casualty industry posted its second-highest net underwriting gain in any quarter since at least 2000, just 12 months removed from its worst-on-record start to a calendar year, as carriers capitalized on top- and bottom-line catalysts.

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The combined ratio of approximately 94.0% would mark the best result for the industry in a first quarter since 2007 and the best result in any quarter since the third quarter of 2013, according to an S&P Global Market Intelligence's preliminary aggregation of March 31 statutory financials released on May 21.

The industry generated a combined ratio of 102.2% in the year-earlier period, which marked an end to 11 consecutive quarters of sub-100% first-quarter results. The net underwriting gain of $10.20 billion has only been surpassed by the $11.06 billion result in the fourth quarter of 2023, not adjusting for inflation. It marked improvement of a remarkable $17.53 billion from the industry's first-quarter 2023 loss.

Staggering improvements in private auto results both sequentially and on a year-over-year basis, benign natural catastrophe losses, and continued benefits from a hard market in many of the commercial lines combined to help the industry make history in the first quarter. At the same time the industry's loss and loss-adjustment-expense (LAE) ratio plunged by 7.6 percentage points from the first quarter of 2023 to 68.8%, the expense ratio was 0.5 percentage point lower at 24.9% as private auto insurers continued to tread cautiously in pursuing growth initiatives after multiple years of historically poor results. Line-of-business level results will be available on S&P Capital IQ Pro by May 24.

While quarter statutory data is insufficient to calculate combined ratios at the line of business level, we previously estimated that a direct incurred loss ratio of approximately 71.3% in the private auto would have produced break-even underwriting results in the first quarter. Applying the same methodology to the first-quarter result of 66.7% yields an estimated combined ratio of 95.6%. The industry's full-year 2023 private auto combined ratio was 104.9%.

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A banner quarter

On a consolidated basis across business lines, incurred losses increased only modestly while net premiums earned continued to rise at a rapid clip. This reflects the combination of continued top-line strength in many commercial lines of business and the hardest private auto pricing environment in 47 years.

Among those entities for which first-quarter results are available, net premiums earned surged by 11.5% while net losses and LAE climbed by only 0.4%. The very modest increase in losses and LAE, in part, reflects the impact of an acceleration in the amount of favorable prior-year reserve development. We estimate that prior-year development was beneficial to the loss and LAE ratio by 3.3 percentage points in the first quarter as compared with 1.9 points in the year-earlier period. Other underwriting expenses increased by 7.6%, which lagged the 9.8% growth in net premiums written.

A relatively mild first quarter from a catastrophe standpoint, in contrast to a more active year-earlier period, helped keep a lid on growth in incurred losses on both net and direct bases. Direct incurred losses for key property-related business lines including homeowners, farmowners, fire, allied lines and the non-liability portion of commercial multiperil were all down by more than 10 percentage points on a year-over-year basis. The homeowners direct incurred loss ratio of 57.2% was 2.5 percentage points above the long-term first-quarter average of 54.7%, but it was 14.7 points better than the historically high result in the year-earlier period. The Allstate Corp., for example, reported $731 million in pretax catastrophe losses in the first quarter, down from $1.69 billion in the year-earlier period.

We preliminarily calculate that the personal lines direct incurred loss ratio improved by 11.3 percentage points on a year-over-year basis to 63.5%. The commercial lines direct incurred loss ratio, which we calculate to include all P&C lines except for homeowners, farmowners, private auto and the accident-and-health business, improved by 2.6 percentage points to 52.3% as favorable results in the property, workers' compensation, and commercial auto lines offset deterioration in the other liability lines.

There were 30 individual P&C entities that generated net underwriting gains in excess of $100 million as compared with 18 entities in the year-earlier period. Only eight individual entities produced net underwriting losses in excess of $100 million, down from 23. Of the carriers with the 10-largest net underwriting gains, seven generated more than half of their calendar-year 2023 net premiums written from private auto business: The Progressive Corp.'s Progressive Direct Insurance Co. and Progressive Casualty Insurance Co., Allstate Insurance Co., Berkshire Hathaway Inc.'s Government Employees Insurance Co. and GEICO General Insurance Co., and United Services Automobile Association and its USAA Casualty Insurance Co. affiliate. Berkshire's National Indemnity Co., which generated 48.4% of its 2023 net premiums written from the private auto business as a result of its GEICO quota-share arrangement, led the industry with a net underwriting profit of nearly $1.45 billion. These eight individual entities combined to produce a first-quarter net underwriting profit of $5.06 billion, a swing of $6.39 billion from their aggregate loss in the year-earlier period.

At the other end of the spectrum, State Farm Mutual Automobile Insurance Co. produced the industry's largest net underwriting loss at $1.04 billion. But that, too, represented significant year-over-year improvement from a loss of $2.87 billion in the first quarter of 2023.

Net income remains subject to group-level adjustments, but sharp increases in net investment income and net realized capital gains, particularly those reaped by State Farm group members on sales of a portion of their holdings of Eli Lilly and Co. common stock, is likely to produce what is likely to be the second-highest result in any quarter in at least the last 23 years, unadjusted for inflation.

Private auto pops

The historical significance of the private auto result depends upon the associated context.

The first quarter's 66.7% direct incurred loss ratio in the business line would represent the industry's first sub-70% result since the second quarter of 2021. It was after that point that the combined effects of a post-COVID-19 return toward more normal driving patterns and the effects of supply-chain-driven inflation led to significant deterioration in loss ratios.

The benign natural catastrophe activity during the quarter undoubtedly provided a tailwind as the direct incurred loss ratio for the physical damage coverages tumbled by 16.1 percentage points year over year to 62.7%. That result was the lowest in any quarter in the last two calendar years by a margin of 5.9 percentage points. Improvement in the other private auto liability direct incurred loss ratio was significant, if not as material: the 70.2% result represented year-over-year improvement of 4.3 percentage points to the best quarterly result since the first three months of 2022.

With significant rate increases still working through income statements and pending in a number of jurisdictions, we would expect premium growth to continue to exceed expansion in incurred losses. In turn, we would expect material year-over-year improvements in private auto loss ratios through at least the second and third quarters. Typical seasonality and the likelihood that strong underwriting results will lead at least some direct-to-consumer writers to increase spending on multimedia advertising means that the estimated private auto combined ratio may have bottomed in the first quarter, however.


The industry-level combined ratios referenced in this article represent an aggregation of individual company results filed with the National Association of Insurance Commissioners and obtained by Market Intelligence as of May 21 unless otherwise noted. While these results will change to some extent as we obtain additional information in the coming weeks, we do not anticipate the movement will be material based on the number and relative magnitude of the expected filers for which we have not received results. Quarterly results for New Jersey-domiciled entities are unavailable due to a state statute that deems those filings to be confidential and not subject to public inspection.

Historical comparisons are based on total-filed P&C industry aggregates displayed on S&P Capital IQ Pro unless otherwise noted. Additionally, year-over-year comparisons for individual Berkshire subsidiaries may not be meaningful due to certain intercompany transactions involving National Indemnity and various GEICO companies associated with revisions to the parties' quota-share structures effective in the first quarter of 2023.

Important considerations for our combined ratio calculations include the following: 1) the results include policyholder dividends unless otherwise noted and 2) we base expense ratios as the combination of other underwriting expenses and aggregate write-ins for underwriting deductions as a percentage of net premiums earned.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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