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Carriers continue to see financial losses, hike rates

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Allstate has been carrying out its pledge to investors to aggressively pursue rate increases to bring its auto insurance business back to profitability, yet continues to see huge losses, similar to those felt by Progressive and GEICO.

Allstate previously reported implementation of rate increases that totaled $258 million in July and $601 million in the quarter after implementing $862 million and $702 million of rate increases in the first quarter of 2022 and fourth quarter of 2021, respectively.

“Allstate has a long history of successfully navigating challenging environments, and we are confident in our ability to restore profitability to target levels while continuing to innovate and transform our company,” said Tom Wilson, Allstate chair, president, and CEO, in a statement. “The impact of rising claim repair costs and upward prior year loss reserve development led to a recorded combined ratio of 107.9 in the second quarter. The underwriting loss combined with equity valuation declines and losses on fixed income sales resulted in a net loss of $1.04 billion and an adjusted net loss of $209 million in the quarter.”

Total revenues of $12.2 billion in Q2 2022 decreased 3.4% compared to Q2 2021. Net loss to common shareholders was nearly the same during Q2 as 2021 Q2’s income, which was $1.60 billion.

Adjusted net loss dropping to $209 million compared to adjusted net income of $1.15 billion generated in Q2 2021 reflects increased claims severity and unfavorable prior year reserve reestimates, lower net investment income, and higher catastrophe losses, according to Allstate.

“…[W]e are further accelerating insurance price increases, implementing underwriting restrictions in underperforming states and reducing advertising spend, which is expected to improve profitability and slow policy growth,” Wilson said. “Insurance premiums earned of $10.9 billion increased 8.6% primarily due to higher average premiums in auto and homeowners insurance. While the current operating environment necessitates [a] focus on improving insurance margins, progress was made on the Transformative Growth strategy including launching beta versions of a new auto insurance product and technology ecosystem. Shareholders also benefited from strong capital management with cash returns of $919 million through common shareholder dividends and share repurchases.”

Allstate Protection auto insurance earned premium increased 6.8% during Q2 2022 “driven by higher average premiums from rate increases and policies in force growth of 2.3% compared to the prior-year quarter.”

Allstate implemented auto rate increases in 30 locations during the second quarter at an average of 8.7%, or 2.5% on total premiums, bringing the year-to-date impact to 6.1% on total premiums.

“Rising auto claim severity levels compared to the prior year reflect higher costs for used cars, parts and labor and are geographically widespread across the United States,” Allstate said. “Injury claim cost increases reflect more severe auto accidents, increased medical inflation, higher consumption of medical treatment and more claims with attorney involvement.”

Chief Financial Officer Mario Rizzo noted that Allstate “continued to provide meaningful cash returns to shareholders” during Q2.

“We returned $919 million to common shareholders through a combination of $683 million in share repurchases and $236 million in common shareholder dividends,” he said. “Shares outstanding have been reduced by 8.7% over the last twelve months and $1.8 billion remains on the current $5 billion share repurchase authorization, which is expected to be completed early next year,” concluded Rizzo.

Progressive’s Q2 net income loss was $542.9 million, or a 169% decrease over Q2 2021. The carrier saw an 8% increase in net premiums written at $12.42 billion compared to $11.48 billion in Q2 2021. Premiums earned also increased, at 11%, over last year’s Q2 to $12.14 billion from $10.98 billion. The carrier says the growth in premiums was driven primarily by rate increases taken during 2021 and the first half of 2022.

Total revenues for the quarter were $11.51 billion with losses and loss adjustment expenses totaling $9.42 billion. For the first half of the year, ending June 30, the carrier lost $1.16 billion in all line premiums received. Year-to-date June 30, personal auto products incurred nearly $45 million of unfavorable loss and loss adjustment expense (LAE) reserve development, according to Progressive’s 10-Q filed with the SEC.

“The unfavorable development was primarily attributable to higher than anticipated severity and frequency of auto property damage payments on previously closed claims and late reported injury claims, partially offset by more subrogation and salvage recoveries and lower loss adjustment expenses than originally anticipated,” Progressive said.

According to S&P Global Market Intelligence, Progressive subsidiaries hiked rates 24 times across six states in July, “which could bolster the group’s aggregate premiums by $671.7 million.”

Progressive saw a decrease during Q2 in personal auto policies, which the carrier said “reflects the significant decrease experienced in new personal auto applications during the first half of 2022, compared to the same period last year, reflecting the personal auto rate increases taken since the first quarter of 2021 and decreased advertising spend, on a year-over-year basis, during the last 12 months.”

According to Fortune and CFRA Reserach analyst Cathy Seifert, privately-owned GEICO reported an underwriting loss of $487 million for Q2 “even as the conglomerate’s other insurance lines gained alongside the division’s investment income.”

Owner, Berkshire Hathaway, said losses at GEICO “were the result of higher claim severity due to rising used-car prices and auto parts shortages,” according to Fortune.

“The company said policies-in-force declined even as it increased premiums, a potential sign that the business is losing market share as customers hunt for better rates elsewhere,” the article states.

S&P reports that GEICO “continued to increase private auto rates, securing 14 rate hike approvals in May,” which could grow the carrier’s cumulative premium by $147.9 million.

Berkshire reported a net loss of $43.8 billion due to a $53 billion loss in the company’s investment portfolio, according to Fortune.

State Farm implemented 17 rate hikes in May, which could raise total premiums across the group by $380.7 million, according to S&P. The carrier doesn’t share quarterly financial reports since it’s not publicly traded.


Featured image credit: gerenme/iStock

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