Personal lines products, which are targeted towards retail customers, saw an increase in premium rates by 2% in February 2015, when compared to the rates a year earlier. A rate increase compared to the prior year can result in improved profitability among insurers operating in the personal lines sector, like AIG (AIG), ACE (ACE), Allstate (ALL), Travelers (TRV), Chubb (CB), and insurers in the Financial Select Sector SPDR ETF (XLF).
In the above charts, we outline the pricing trend and the profitability in the industry. During the last two years, the personal lines insurance products saw a consistent increase in rates in the range of 2% to 4%, as per the Personal Lines Composite Index data provided by MarketScout. The 2% rate increase in personal lines rates in February 2015 occurred after a similar increase in January 2015 in comparison to the rates in the corresponding periods of the previous year.
As mentioned earlier, a hard market condition results in improved profitability. As we can see in the chart above, the US personal lines businesses have seen improved profitability from the 2011 levels. The improvement could be attributed to the stable positive rate development that the US personal lines P&C market has seen since January 2012.
The market hardening in the personal lines segment is driven by increasing rates in both automobile insurance products and home insurance products as we’ll discuss in the next article.