Thetop 20 private auto insurers by market share all saw positive premium growth in2015, as their combined direct premiums written climbed to $162.93 billion from$154.95 billion in 2014, according to SNL Financial data.
once again had adouble-digit premium growth rate at 11.19% in 2015. The unit hasexperienced a double-digit growth rate since 2013 when it as the second-largestprivate auto insurer in the U.S. Now, Berkshire Hathaway President, Chairmanand CEO Warren Buffett is eyeing State Farm Mutual Automobile Insurance Co.'s spot,vowing to announce in August 2030 that GEICO will have taken over as thelargest auto insurer.
"Ican see the gap narrowing, but it is a bit of a leap to anticipate that GEICOwill surpass State Farm's market share in 15 years," Tracy Dolin-Benguigui, adirector at Standard & Poor's Ratings Services, said.
Dolin-Benguiguisaid State Farm's loyal customer base may be "tough to crack," andovertaking the insurer would require GEICO to fully capitalize homeowners andauto insurance bundling.
FitchRatings Managing Director Jim Auden said it is difficult to predict whetherBuffett will succeed with his plan.
"GEICOhas grown in the business. They're a profit-oriented company so they may growto a certain point where they will find it difficult to find as many profitablecustomers as possible that could change their growth strategy," Audensaid. "State Farm is quite a bit bigger than them right now in the market,so I guess we'll just wait and see how events unfold."
StateFarm remained the largest private auto insurer in terms of direct premiumswritten in 2015. Despite GEICO's double-digit premium growth, its directpremiums written of $22.74 billion still lagged well behind State Farm's $36.55billion. State Farm's results for 2014 included the State Farm Canada business,which the company sold Jan. 1, 2015.State Farm reported private auto direct premiums written of a negative $8million in Canada in 2015, compared with a positive $1.21 billion in 2014.Excluding Canada, State Farm's direct premiums written was up 6.33% in 2015,versus 6.26% in 2014.
Despitethe positive premium growth, 14 of the top 20 private auto insurers by marketshare saw their combined ratios deteriorate in 2015 compared with the previousyear. Executives noted that higher accident frequency and severity impactedprivate auto insurers' underwriting profitability, but blamed different factorsfor contributing to the trends. Some attributed the rising frequency to anincrease in miles driven as oil prices dropped, while others pointed to safetydevices in automobiles.
Dolin-Benguiguisaid there is no consensus on the factors that affected frequency.
"Toysin vehicles are proving to be costly distractions, not to mention expensive torepair. Lower unemployment may be contributing to the frequency story, moresothan low oil prices. To some degree, weather-related losses were anotherculprit, albeit one that varied by geography," she said.
SNLFinancial data show that Allstate's 2015 private auto insurance combined ratioclimbed to 100.68% in 2015 from 97.50% in 2014 as higher frequency of accidentsand the average cost claims related to them impacted auto insuranceprofitability.
Risingclaim costs at GEICO and its subsidiaries negatively impacted the after-taxearnings from underwriting of Berkshire Hathaway's insurance businesses in2015, according to a Form10-K filed Feb. 29. GEICO's pretax underwriting gains fell to $460million from $1.16 billion as it experienced higher claims frequencies andseverities across all of its major coverages. While GEICO's combined ratio in2015 was 98.40%, versus 103.86% in 2014, the private auto combined ratio acrossthe Berkshire Hathaway group increased to 112.11% in 2015, from 109.09% in2014. Certain intercompany transactions impacted comparisons involving theGEICO subgroup's combined ratio.
Theranking of the top 10 private auto insurers in 2015 was unchanged compared withthe previous year's ranking. Movement did occur in the bottom half of the top20 as Auto Club ExchangeGroup, Erie Insurance Group, Mercury General Corp. and climbed theranking ladder.
, which slid to 13th place in 2015, also suffered fromhigher-than-expected frequency trends in auto book of its personal linessegment.
AtMetLife Inc., higherseverity and frequency in the auto business also partly contributed to theincrease in noncatastrophe claim costs, according to a filed Feb. 25. The insurerdropped to 16th place in 2015 from 14th place in SNL Financial's market shareranking.
Dolin-Benguigui said private auto insurance market sharerankings will not likely change, barring a transformative acquisition.
Privateauto insurers turned to premium hikes and underwriting improvements to counter theimpact of unfavorable trends in the business, with Allstate, The Hartford andGEICO promising to continue seeking premium increases where needed.Allstate implementedauto insurance profit improvement plans that include raising prices,implementing stricter underwriting standards and cutting expenses. PresidentDouglas Elliot said The Hartford has applied for rate changes in certainmarkets in the hopes that it would help improve the profitability of the autobook, according to a transcript.
Audensaid premium hikes could lead to modest improvement in auto insurers' 2016underwriting results although regulatory pushback could limit the pace ofgrowth. For example, Allstate is facing over itsrate request inGeorgia where it reportedly filed for an overall increase of 25%.
"Companieshave indicated that the frequency trend may be here for a while so they needed toadapt to that in underwriting and pricing, so we'll see how they do [in2016]," the managing director said.
Overall,the private auto insurance industry in terms of direct premiums written grew4.91% to $199.95 billion in 2015, compared with 4.77% to $190.59 billion in2014. The industry's combined ratio deteriorated to 104.10% in 2015 from101.93% in 2014.
Audensaid the market is not likely to generate a "great" aggregateunderwriting profit in the near term. He said private auto insurers willcontinue to experience underwriting challenges as the market remains "verycompetitive" in terms of pricing, advertising and technology.
"Thebusiness requires a substantial technology investment to staycompetitive," he said. "We think smaller companies are disadvantagedin being able to make those investments without a large premium base, so themarket should likely become more concentrated overtime."
SNL offers a variety of tools to analyze underwriting performance of insurance companies.
Click here for a template to review annual underwriting information and market share for P&C insurance companies by lines of business. This information is also available in the U.S. Insurance Statutory Financials database in SNLxl.
Click here for an instructional webinar on how to operate the powerful P&C market share template, which allows detailed analysis by lines of business.
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