The commercial auto insurance segment maintained its place as a weaker-performing U.S. property/casualty insurance product line in 2023. Despite successive periods of pricing and underwriting actions, commercial auto has generated a statutory combined ratio above 100 in 12 of the last 13 years, including a highly unprofitable 109 in 2023.
Executive Summary
Is there an end to chronic reserve deficiencies in the commercial auto line?This analysis from Fitch Ratings Managing Director James Auden offers some hope although the picture is mixed. Recent accident years 2021 and 2022 each already have reported 2 percentage points of unfavorable development from the original estimates, and early unfavorable development rarely reverses for liability lines. On the other hand, there are some promising indicators including a 2023 reported industry loss ratio in commercial auto liability that is 4-5 points higher than the original loss ratio reported for earlier deficient underwriting periods, and higher paid-to-incurred and IBNR-to-incurred ratios for more recent years as well.
In contrast, the overall commercial lines insurance sector reported an unusually long period of success in recent years, with a 97 average combined ratio for the five years 2019-2023. This performance is largely due to an extended hardening market pricing cycle that is entering its seventh year, combined with renewed market underwriting discipline, and despite loss volatility from multiple sources.
Commercial auto results are anticipated to modestly improve in 2024, but several systemic and economic factors continue to influence claims trends and add to loss reserving uncertainty that will inhibit any return to underwriting profitability for the market in the near term.
History of Underwriting Losses
Commercial auto is the third largest product segment in the U.S. commercial insurance sector with $55 billion in net written premiums in 2023. Premium volume has grown at an annualized rate of over 9 percent for the last five years.
