The commercial auto insurance segment posted its best underwriting result in a decade in 2020, thanks to continued big rate increases and a big drop in driving due to the coronavirus pandemic.
According to a Fitch Ratings report, the commercial auto combined ratio of 101.6 for 2020 was nearly eight percentage points better than the 2019 rate. Fitch said it expects further improvement to move the commercial auto combined ratio to approximate break-even levels in 2021.
However, future profitability may be challenged as driving activity returns to past norms, while claims severity patterns remain problematic and pricing momentum may have peaked, Fitch added.
The overall U.S. property/casualty industry is expected to show better underwriting performance in 2021, supported by improved commercial lines pricing.
Fitch noted that the pandemic’s socioeconomic changes led to an “unprecedented decline” in commercial auto claims frequency. Industry data from statutory filings reveals a 26% decline in total reported liability claims in accident-year 2020.
Regular increases in claims severity have been a key factor behind the chronic underperformance of commercial auto over the past decade, according to the report.
Looking ahead, Fitch believes higher costs from rising litigation activity and larger jury verdicts and settlement costs are likely to weigh on profits in the future.
Unfavorable reserve development of commercial auto liability business continued for the ninth consecutive year in 2020, adding over 7 points to the calendar-year loss ratio. Segment results in 2021 will more likely benefit from favorable 2020 accident year development that will serve to offset further reserve deficiencies in prior periods, the report says.
According to market share data from the National Association of Insurance Commissioners (NAIC) data, the top commercial auto insurers are Progressive (12.3%), Travelers (6.3%), Old Republic (4.2%), Liberty Mutual (3.7%) and Nationwide (3.6%). The top 24 commercial auto insurers write more than $45 billion in premiums.
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