A cursory glance at third-quarter statutory property and casualty results supports the gloomy conventional wisdom regarding loss trends in the commercial auto liability line, but a closer look at the data finds a wide range of experience among the leading writers in a business that encompasses a diverse array of risks.
The commercial auto liability direct incurred loss ratio widened across all filers to 75.4% in the third quarter from 70.7% in the year-earlier period and to 69.4% for the first nine months of 2017 from 66.6%, according to data compiled Dec. 8 and subject to change. But Liberty Mutual Holding Co. Inc., the third-largest commercial auto liability writer during the third quarter, accounted for essentially all of the industry's loss ratio deterioration as it took a significant reserve charge in the business line.
Liberty Mutual's commercial auto liability direct incurred loss ratio spiked to 188.3% for the three-month period ended Sept. 30 and to 111.9% for the first nine months of the year, compared with results of just above 54% for each of the respective periods in 2016. When excluding that group's results from the industry totals, the third-quarter commercial auto liability direct incurred loss ratio would have improved year over year to 69.4% from 71.6% in the third quarter and would have held steady at 67.2% year-to-date.
Eleven of the top 20 commercial auto liability insurers at the group level based on third-quarter direct premiums written showed year-over-year improvement in their commercial auto liability direct incurred loss ratios for the three-month period ended Sept. 30, including five with double-digit percentage-point improvement.
Liberty Mutual Chairman, President and CEO David Long said during a November conference call that his company increased commercial auto reserves for prior accident years by $400 million in the third quarter. No U.S. P&C group aside from American International Group Inc. posted as much as $200 million in unfavorable commercial auto liability reserve development in a single calendar year on Schedule P of their combined annual statements in at least the last decade.
Even among those groups that showed improvement in their third-quarter commercial auto liability direct incurred loss ratios, their stories were not universally upbeat.
Progressive Corp., the largest commercial auto liability writer, produced direct incurred loss ratios of 66.7% and 65.4% for the third quarter and the first nine months of 2017, respectively, down from 71.9% and 66.8% in the comparable periods of 2016. Company officials have indicated in the past that the business can be volatile, however, and Progressive's monthly underwriting results seem to bear that out.
Progressive's monthly combined ratios in its commercial lines segment, which includes primary liability and physical damage insurance for commercial vehicles, have ranged from a low of 82.2% in January to a high of 100.8% in August. The October commercial lines combined ratio of 99.1% marked an increase from 93.4% in the same month in 2016, which represented Progressive's first unfavorable comparison in that measure of underwriting performance since May.
AIG exhibited the most significant improvements in the direct incurred loss ratio among the top 10 commercial auto liability writers in the third quarter even as the company said it bolstered reserves to address higher-than-expected loss severity in the business. Its commercial auto liability direct incurred loss ratio for the third quarter declined to 69.5% from 85.1% in the year-earlier period but remained 4.7 percentage points higher for the year-to-date period at 92.2%.
The Hartford Financial Services Group Inc.'s U.S. P&C units similarly combined to generate a commercial auto liability direct incurred loss ratio that fell double-digit percentage points in the third quarter even as the result for the first nine months of the year continued to run hotter than in the year-ago period. Their commercial auto liability direct incurred loss ratios were 73.8% and 78.4% for the year-to-date as compared with 87.7% and 67.9% in the respective year-earlier periods.
The Hartford Chairman and CEO Christopher Swift, replying to a question about the potential for hardening commercial P&C rates in 2018 during an appearance at an investor conference Dec. 6, said he expects The Hartford to seek rate hikes "probably in that 8% to 10% range in '18" as he observed that "the market is being more disciplined." Industrywide, commercial auto liability direct premiums written rose 7.8% in the third quarter.
S&P Global Market Intelligence previously issued a projection for the industry's commercial auto liability combined ratio to essentially mirror 2016's lofty result at approximately 113%. The nature of the total-filed results through the first nine months of 2017 keeps the industry on course for that kind of unsatisfactory outcome even as the push for rate increases foreshadows future improvements.
