First-quarterresults for GEICO Corp.contained a mix of favorable and unfavorable comparisons that show evidence of theimpact of a series of rate increases implemented by the auto insurer.
GEICO'svoluntary auto new business growth turned modestly negative, but its underwritinggain soared by 65% to $264 million. In both cases, the results represented divergencefrom trends that had been playing out over a number of quarters.
in a reported that voluntaryauto new business sales in the first quarter decreased 0.3% compared to 2015, evenas its voluntary auto policies in force increased by approximately 241,000 fromDec. 31, 2015. The company does not disclose the raw number of voluntary auto newbusiness sales in its 10-Qs and 10-Ks, and it presents the growth rates on a year-to-date,rather than quarterly, basis for reporting periods other than the first quarters.Subject to those constraints, it last reported a negative change in voluntary autonew business sales for the first nine months of 2012, when the company that the value had "declinedslightly compared with 2011."
BerkshireHathaway reported growth in voluntary auto new business sales of 1.4% in the firstquarter of 2015, according to its 10-Qfor that period. Voluntary auto policies in force rose by 361,000 policies duringthe first quarter of 2015. And Berkshire Hathaway observed in issuing that disclosurethat "[i]n recent years, the growth in voluntary auto policies-in-force hasbeen the greatest during the first quarter."
It hadbeen since 2010 that GEICO's growth in voluntary auto policies in force for a firstquarter was lower than that it posted in the first three months of 2016. The growthrate was 218,000 policies in the first quarter of 2010, according to its for that period.
"GEICO'sgrowth rate in the first quarter was not as high as in the past couple first quarters,but it was quite satisfactory," Berkshire Hathaway Chairman Warren Buffettsaid in response to a question on the topic during the company's annual shareholdermeeting, according to a transcript of the event.
Any slowdownin new business volume was not immediately evident in GEICO's premium growth trends,however. Written premiums of nearly $6.57 billion marked an increase of 11.5% fromthe year-earlier period, representing the fourth-consecutive quarter in which thegrowth rate has exceeded 11%. (The growth rate of 12.6% for the fourth quarter of2015 represents the full-year value reported by Berkshire Hathaway, less the writtenpremium it had previously attributed to the first three quarters of 2015. All otherstatistics involving fourth quarters referenced in this article rely on similarcalculations as Berkshire Hathaway does not disclose GEICO-related values for thatperiod.)
Growthin earned premiums of more than 12.3% represented the 12th-consecutive period inwhich GEICO generated expansion of 10% or more. It also signified the highest levelof growth the company had achieved in a single quarter in more than a decade.Berkshire Hathaway attributedthe double-digit growth in written and earned premiums to voluntary auto policy-in-forcegrowth of 4.3% and increased premiums per auto policy of approximately 7.2% duringthe past 12 months.
GEICOhas been implementing rate increases where necessary in response to the impact ofhigher claims frequency and severity on its loss ratio, and Berkshire Hathaway reportedthat the impact of rate increases on the denominator of that equation helped offsetthe impact of higher storm losses on the numerator during the first quarter.
GEICO'sloss and loss-adjustment-expense ratio of 79.7% marked a decrease from 80.1% inthe first quarter of 2015. It was the first quarter since the third quarter of 2014that GEICO's loss and LAE ratio was below 80%.
GEICO'sincurred losses and LAE increased by $507 million on a year-over-year basis, inpart reflecting approximately $100 million of storm losses. During the year-earlierperiod, its storm losses were "negligible," Berkshire Hathaway said. Italso warned that the level of storm losses in April were "considerably greater"than those in the same month in 2015.
The companyfurther disclosed that claims frequency for the property damage and collision coverageswas down in a range of between 4% and 5% as compared with 2015, and it was relativelyunchanged for the bodily injury coverage. Average claims severity increased by between3% and 5% for physical damage and collision and by between 6% and 8% for bodilyinjury.
Withthe combination of underwriting expenses and incurred losses and LAE having increasedat a slower pace than premiums earned, GEICO's underwriting gain compared favorablyto the year-ago period — the first reporting period since the second quarter of2014 in which the underwriting gain or loss had not declined on a year-over-yearbasis. The $264 million underwriting gain was the highest GEICO had posted in asingle period since it reported the same figure for the third quarter of 2014.