U.S. Insurance: Why the growth prospects for personal lines may be better than commercial lines

Research evidence excerpt

U.S. Insurance: Why the growth prospects for personal lines may be better than commercial lines

ations are justified by ALL Allstate Corp.

the more diversified earnings streams. However, an outsized proportion of P&C WRB W.R. Berkley

underwriting income at Hartford and Travelers comes from personal lines, workers’

comp and surety, over-earning based on contributions from a narrow selection of peak- CB Chubb Ltd

ish business lines. Chubb and W.R. Berkley are also at the peak of their underwriting

PGR Progressive Corpcycle, though their line of profitable business mix is much more diverse.

HIG The Hartford

Home/auto vs. workers comp/surety compared

We concede the argument that Allstate’s and Progressive’s earnings profiles are less TRV Travelers Cos

diversified, but we also note that home and auto insurance is a largely non-discretionary

product with low macroeconomic sensitivity. Workers’ comp has enjoyed a remarkable

decade of profitability industrywide for a product that has often been a material drag on

underwriter profitability, and surety has enjoyed an unparalleled two decades of strong

profits. Both lines have real macroeconomic sensitivity that have benefitted from

employment trends and extended economic expansion. Home/auto would likely be

resilient in a recession, while workers’ comp/surety results would likely weaken.

Personal can grow market share; commercial has a “ceiling”

Progressive has just surpassed State Farm as the largest underwriter of U.S. personal

auto with 19% market share. Allstate is #3 with 11%. Both companies have a willing

appetite for more market share and are investing in distribution to get it. There may be

no true “ceiling” for commercial risk, but large companies like Chubb and Travelers tend