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Premium growth continues to slow at big US private auto insurers in Q3

Premium growth again weakened year over year at the biggest U.S. private auto insurers in the third quarter, while loss ratios generally worsened, according to an S&P Global Market Intelligence analysis.

The industry's written premiums increased 2.8% year over year in the period, down from the 5.5% growth rate posted in the third quarter of 2018. For the top 20 private auto insurers, premium growth slowed to 3.2% from 5.7%.

Janney Montgomery Scott analyst Larry Greenberg in a note to clients said the auto marketplace has seen mostly decelerating price increases in 2019, and that personal auto severity trends continue to be "stubbornly high" due to medical cost inflation and expensive replacement costs for parts. Somewhat offsetting that higher severity are long-term frequency trends that have been favorable.

"Factoring in both the pricing and loss cost trends, we believe we are in the early innings of personal auto underwriting margin contraction," Greenberg wrote.

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State Farm Mutual Automobile Insurance Co. continues to be the largest private auto insurer in the U.S., but its premiums written declined to $10.48 billion from $10.72 billion. Berkshire Hathaway Inc.'s GEICO Corp. unit was second with about $9.15 billion in premiums written; its growth slowed to 5.1% from 10.3% in the prior-year period.

Progressive Corp. was third with $7.95 billion, up 12.0% from a year earlier. It was the only company in the top 20 to post double-digit growth, yet its pace also decelerated from a year earlier.

Progressive CEO Tricia Griffith in her first-quarter letter to shareholders said she saw "signals of a softening personal auto market" as competitors lowered rates. But she remained confident that the company was "well positioned" to focus on the best ways to leverage its increased marketing spending.

Sandler O'Neill & Partners analyst Paul Newsome said Progressive's November results included a weaker-than-expected result in the private auto segment. While growth was in-line with expectations, profitability in the segment was not as strong as anticipated, leading to an underwriting miss. Newsome in a research note cut his EPS projections for the company and lowered his price target on the stock.

Keefe Bruyette & Woods analyst Meyer Shields did the same, as he expects core personal auto margin compression to continue owing to Progressive's recent small rate decreases and net positive loss cost inflation.

Of the five largest writers of private auto business, four saw their loss ratios worsen year over year in the third quarter. Fourth-placed Allstate Corp. was the outlier as its loss ratio improved to 57.22%. Fifth-ranked United Services Automobile Association had the worst loss ratio among them at 78.44%.