Best’s Market Segment Report: Favorable Signs for US Nonstandard Auto Insurers

Following two years of unprofitable but improving results, the U.S. nonstandard auto insurance segment has notched a slight profit for the first half of 2024, according to a new AM Best report.

Insurer initiatives to promote safer driving habits, counter rising loss costs, and help improve auto fatality rates have more broadly benefited the underwriting performance for personal auto writers, and provided a lift for nonstandard auto insurers.

The Best’s Market Segment Report, “Favorable Signs for Nonstandard Auto Insurers,” states that the results of the companies that comprise AM Best’s private passenger nonstandard auto (PPNSA) composite generated underwriting income of $13 million in the first half of 2024. This compares favorably with the $457 million underwriting loss reported for the same prior-year period.

Prior to the improved first-half 2024 results, post-pandemic headwinds greatly affected the profitability of standard and nonstandard auto insurers. Those headwinds include persisting rate inadequacy, the effect of inflationary pressures on body shops, the cost of auto parts, used car prices, and an increase in attorney-represented bodily injury claims.

AM Best recently revised its outlook for the U.S. personal auto insurance segment to stable from negative. The key drivers of the outlook change were the segment’s improved rate adequacy, a more accommodating regulatory landscape for personal auto insurers, solid risk-adjusted capitalization, and rising investment yields as lower-yielding bonds mature and are reinvested at higher rates. “The operating results of the PPNSA composite have lagged those of AM Best’s private passenger standard auto composite,” said David Blades, associate director, AM Best. “The key differences have been in the combined ratios for the two composites, measuring bottom-line underwriting profitability. The personal auto line also benefits from being a leader in leveraging current technology in all operational areas, including claims, underwriting, and distribution,”

The PPNSA composite’s net underwriting results improved in 2023, but still generated an underwriting loss of $673 million for year-end 2023, although that loss was comparatively much smaller than the loss of $904 million in 2022.

On a quarterly basis, nonstandard auto market direct premiums written have been rising over the past several years. Efforts to achieve rate adequacy resulted in a 25% year-over-year increase in the first quarter of 2024 and a 23% increase in the second quarter. The PPNSA composite’s quarterly direct premium written (DPW) surpassed the $7 billion plateau for the first time in the first quarter of 2024, and it came close to doing so again in the second quarter, with $6.6 billion in DPW.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=349572.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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