Personal automobile insurers will experience disappointing financial results over the next five years, continuing a pattern of mediocrity dating back to 1993, according to a new study from Conning Research & Consulting, Inc.
In the study, “Caution Flag for Personal Automobile Insurance,” Conning analyzes the personal automobile line over the past nine years against two benchmarks: premium growth equal to Gross Domestic Product growth and return on surplus of 12 percent. Not once during 1993-2001 did the industry achieve both benchmarks in the same year.
“Personal automobile insurance shrank as a portion of the U.S. economy and generated a return on surplus of only 7.8 percent during 1993-2001,” Michael Weinstein, Director of Research, Conning Research & Consulting, said. “Given the frequency of outright poor results on a year-by-year or insurer-by-insurer basis, Conning sees danger on the track. The nature of the marketplace will prevent those trailing the leaders from moving up.”
The Conning study, analyzing the results of 161 insurers for personal auto during 1993-2001, found that only 15 insurers achieved averages exceeding the benchmarks for both growth and return on surplus. The study explores why those insurers succeeded and the industry did not.
Further, Conning sees little reason to expect broad improvement during 2003-2007. The study considers likely developments in premiums, loss exposures, expenses, investments, realized gains, and premium to surplus leverage.
“We expect no fuel injection to boost the performance of most personal automobile insurers over the next five years,” Weinstein added.