Liberty Mutual to boost US motor rates to make up for loss trends

Claims inflation is driving up reserves and impacting results, making further rate increases necessary to stabilise underwriting profitability, Liberty Mutual executives said during a March 2 results presentation.

Liberty Mutual’s fourth quarter 2016 results were hit by elevated loss trends within US personal and commercial auto liability. Personal auto loss ratios went up to 81.6 percent in the fourth quarter compared to 79.8 percent in the same period a year ago.

Attributable net income in the fourth quarter was down by $268 million year-on-year at $143 million.

Rapidly advancing vehicle technology is putting pressure on severity trends, driven by higher repair costs. Specifically, repairs for cars with advanced driver assistance systems involve a higher number of parts replaced per claim along with elevated labour hours, according to the presentation.

“The severity of claims is increasing, driven at least in part by the fact that safer vehicles are more expensive to repair,” CEO David Long said during the presentation.

In addition, there is an increase in highway miles in the US. Also, an increase in distracted driving highway miles is leading to more serious accidents, Long said.

Due to the continued auto loss trends, particularly severity, Liberty Mutual strengthened prior year reserves in the fourth quarter by $154 million pre-tax across US personal and commercial auto liability lines, Long said. In addition, Liberty Mutual recorded $48 million pre-tax of current year re-estimation on the quarter. On a full year basis, the total impact on results was $388 million for both US personal and commercial lines, Long noted.

“In response to these trends, we began accelerating rates throughout the year [2016]. We started the year at 5 percent and ended at 9 [percent],” Long said.

But further increases, beyond the 9 percent level recorded at 2016-end, may be necessary to make up for increasing loss trends and stabilise underwriting profitability in the motor lines as new technology such as sensors takes a while to be introduced to car fleets on a larger scale.

“I think you could see us continue to push additional rates above those [9 percent] levels,” said Timothy Sweeney, president global consumer markets.

“We began to pump up our rates 12 months ago as we started to see these trends. We are seeing most of our competitors doing the same,” Sweeney noted.

The adjustments are set to take a while to show results. Commercial auto has seen an accident year combined ratio of 105 percent. It will take about two years to get this combined ratio back to a targeted “high 90 percent area,” according to management.

Today’s top stories

Reshuffle at White Mountains as Barrette steps down

Munich Re leads expanded reinsurance coverage for Pool Re

DARAG CEO steps down as new executive committee is formed

AssuredPartners pays Brown & Brown $20m to settle poaching lawsuit

Did you enjoy reading this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.