The second quarter results of 2011 seem to suggest a tumultuous phase due to the thunderstorms and tornadoes in Midwest and the South. The auto insurance industry loss ratio prior to consideration of reinsurance has climbed to 70.6% and has marked the industry’s worst second quarter performance since 2001. This has even outpaced the loss ratios of 58.1% and 56.2% in 2010 and 2009 during the second quarters, according to SNL insurance which is a division of SNL. The industry premium has essentially remained flat and has decreased just 0.2% from the second quarter of 2010.
The auto insurance companies were also seriously affected due to the major catastrophes. State Farm Mutual Automobile Insurance Company also suffered a huge blow to its profits during that quarter.
The direct loss ratio was 86.3% for State Farm, for auto physical damage. This is approximately 2,000 basis points higher when compared to the loss ratios that were reported during the previous second quarters. State Farm writes the auto physical damage premiums for almost a quarter of the tornado-affected states of Mississippi, Alabama, Missouri, as well as Oklahoma and this is more than all three of the largest writers put together.
The remaining top five writers such as Allstate, Berkshire Hathaway, GEICO, Progressive, as well as Zurich Financial Services saw their loss ratios increase when compared to the Q2 results in 2010. However, these increases were much smaller than that of State Farm.
The others who saw a substantial hit to their loss ratios were Southern Farm Bureau Casualty Insurance Group, State Auto Financial Corp, Erie Indemnity Co, and Travelers Cos Inc.
During 2010, Southern Farm Bureau, which is a regional insurer had written 26% of its private auto business in the state of Mississippi, and thereby producing substantial exposure to the tornadoes on April 27 in Smithville as well as Greensburg and other damaging storms in the Southeastern regions in the US.
However, not all the top auto insurance carriers were exposed to tornadoes. There were some that faced just a minimal impact or no impact due to the tornadoes. Some of them are Auto Club Insurance Association Group, Mercury General Corp, Fundacion MAPFRE, Hanover Insurance Group, and New Jersey Manufacturers Insurance Company.
According to SNL, Hanover had experienced around 55.8% loss ratio for auto physical damage for the quarter, but the homeowners’ reports show that there has been a statutory loss ratio of about 99.5% for the company.