Underwriting results for personal lines-focused US insurers worsened during the second quarter of 2023 as natural catastrophes and inflationary pressures weighed on results. US life insurers’ aggregate interest maintenance reserves fell in the second quarter of 2023 to the lowest level since 2011, but recent regulatory changes signal that some relief is on the way.

According to S&P Global Market Intelligence, an aggregation of results for insurance subsidiaries that write at least 70% of their direct premiums within personal lines — personal auto insurance, homeowners and farmowners — showed a net combined ratio growing to 114.9% in the second quarter of 2023 compared to 112.4% in the prior year period, according to a review of quarterly regulatory statements.

Carriers that are slow to address the challenges ahead or do not have the means, expertise, or technological capabilities to keep pace with changes in the segment likely will face ratings pressure.

Combined ratio for personal insurance lines

The quarterly combined ratio for personal World’s Largest Insurance Markets lines-focused companies remains elevated when compared to prominently commercial business lines-focused subsidiaries.

Among the largest US personal lines-focused insurers, The Allstate Corp. recorded the largest year-over-year deterioration. The Illinois-based insurer’s quarterly net combined ratio jumped to 118.5% during the quarter, an increase of 10.1 percentage points from the second quarter of 2022.

The net combined ratio for Farmers Insurance Group of Cos. rose to 117.4% in the second quarter, up 9.8 percentage points from the prior-year quarter.

The insurer’s net combined ratio has surpassed 100% for nine of the past 10 quarters, with the 99.8% figure during the last quarter of 2021 being the only quarter under the break-even metric of 100% since the start of 2021.

Insurance profitability would be reducing

In an effort to help return the insurer to profitability, Farmers announced on Aug. 28 that it would be reducing its workforce by about 11%, or 2,400 employees.

Farmers CEO Raul Vargas said the industry is facing macroeconomic challenges and the insurer “must carefully manage risk and prudently align our costs with our strategic plans for sustainable profitability.” Farmers’ annual combined statement shows it paid $2.62 billion in total salaries during 2022, the most recent available breakout, or about 15% of the insurer’s net premiums during the year.

State Farm’s net combined ratio was 116.7% during the second quarter, including the second-highest expense ratio among the companies in the analysis at 21.7%. The insurer’s total salary expense was $5.02 billion in 2022, which equates to 6.8% of its $74.34 in net premiums earned.

Geico Corp.’s expense ratio of 10.3% was the lowest among the companies in this analysis during the quarter. The insurer has aggressively cut its ad spend and it has been reported that the insurer did another round of cuts to its workforce in August 2023. The third-largest US personal auto insurer had a 12% decrease year over year in its net losses incurred, while its net premiums earned were essentially flat.

Geico reported that a combination of higher average premiums per policy, a smaller number of policies in force, favorable prior-years reserve development and lower claims frequencies, which was partially offset by increases in its claims severity, pushed its net combined ratio to 95.8% in the second quarter 2023. This was an improvement of 11.5 percentage points from the prior-year period.