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Auto improvements fuel return to profitability for another personal lines mutual

After posting its first sub-100% combined ratio excluding the impact of policyholder dividends in four years, Amica Mutual Insurance Co. is projecting even more favorable results for 2019.

The Lincoln, R.I.-based company in its annual statutory statement projected a 2019 combined ratio at the group level of 101.1%, including dividends and measuring other underwriting expenses relative to net premiums earned, as it expects a second consecutive year of marked improvement in its loss ratio. Amica Mutual and its Amica Property & Casualty Insurance Co. subsidiary generated a net underwriting profit in 2018 of $50.7 million, as calculated by S&P Global Market Intelligence, compared with a loss of $92.1 million in 2017.

The Amica Mutual group's 2018 combined ratio totaled 103.9% when weighing other underwriting expenses against net premiums earned and 103.5% when measuring them against net premiums written, which is the methodology primarily employed by S&P Global Market Intelligence. That compares with figures of 110.9% and 109.9%, respectively, in 2017.

The combined ratio excluding policyholder dividends was below 98% in 2018 on either basis, versus results above 103% in 2017. The group's combined ratio exceeded 100% both with and without the impact of policyholder dividends in 2015 and 2016 as well.

The policyholder dividend ratio averaged 6.9% during the last four years; it totaled 6.1% in 2018 as management said that it decided to lower dividend rates in several key states. The forecast combined ratio for 2019 suggests a result excluding the impact of dividends of around 95%.

A lower net loss ratio accounted for most of the year-over-year improvement in 2018 as the group's result fell to 63.6% from 69.3% in 2017. Amica Mutual issued a forecast for a 59.4% net loss ratio at the group level in 2019, which would represent its best result since the 55.2% it posted in 2014. The company said more favorable claims activity and continued benefits from rate increases will drive the improvement in its loss ratio.

Loss ratios in both the private auto and homeowners business lines "remained slightly elevated" in 2018, according to the company, but a closer look at statutory data shows that Amica Mutual saw improvement in each of those core areas of focus.

S&P Global Market Intelligence calculates a direct loss and defense and cost containment expense, or DCCE, ratio of 62.1% in homeowners for 2018, down from just under 70% in 2017, but above the results the group produced in that line from 2012 through 2014 and in 2016. Amica Mutual said winter weather, hail and fire loss experience was elevated in 2018, adversely affecting the homeowners results, pointing specifically to "two major hailstorms" in Texas and Colorado in June of that year.

The group's direct loss and DCCE ratio across the private auto business lines was 69.8% in 2018, down from 74.9% in 2017 and the lowest such result since 2014's 66.2%. Trends varied across coverages, however. While the private auto physical damage direct loss and DCCE ratio tumbled by 10 percentage points to a best-in-four-years 64.9%, the other private auto liability direct loss and DCCE ratio fell by just 1 percentage point to 73.8%. Direct premiums earned for the group's private auto business, across coverages, increased by 6.3% at the same time direct losses and DCCE incurred fell by 1.2%. Amica Mutual noted particular improvement in comprehensive claims on a year-over-year basis given the impact of Hurricane Harvey on 2017 results.

Amica Mutual also observed that its auto losses remained higher as it felt the effects of broader trends involving distracted driving, rising repair costs, and more drivers on the road during a time of low unemployment rates and gasoline prices.

Those factors appear to be considerably more muted on an industrywide basis in 2018, however, relative to the three prior years. Strength in the private auto business represented the leading driver of the largest net underwriting profit in 12 years for the market-leading group headed by State Farm Mutual Automobile Insurance Co., for example. The nation's No. 2 and No. 3 private auto writers, Berkshire Hathaway Inc.'s GEICO Corp. companies and Progressive Corp., also showed considerable year-over-year improvements in statutory underwriting profitability.

Amica Mutual is in the process of converting auto policies in certain markets to six-month terms from 12-month terms as it seeks the ability to respond more rapidly to the changing underwriting conditions. It first offered those terms in the fourth quarter of 2018 in Texas and Florida, and plans to do so in 18 additional states in 2019. According to one product filing regarding the forthcoming change in New Jersey, the group indicated that all of its private auto insureds in that state would default to six-month terms upon renewal.