Personal Auto: If Inflation Is Rising, Where Are the Losses?

Research evidence excerpt

Personal Auto: If Inflation Is Rising, Where Are the Losses?

Foundation

July 8, 2026 04:01 AM GMT

Morgan Stanley & Co. LLCMInsurance - Property & Casualty | North America Bob Jian Huang

Equity Analyst

Personal Auto: If Inflation Is Bob.Huang@morganstanley.comDaniel Lee, ACAS +1 212 761-6136

Research Associate

Daniel.Lee4@morganstanley.com +1 212 761-0219

Rising, Where Are the Losses? Siddhant Shah

Sid.Shah@morganstanley.com +1 212 761-2603

Edward Tian

What’s Changed Equity Strategist

The Travelers Companies, Inc. (TRV.N) From To Edward.Tian@morganstanley.com +1 212 761-5558

Price Target $330.00 $333.00

Insurance - Property & Casualty

Hanover Insurance Group Inc (THG.N) North America

Price Target $220.00 $225.00 Industry View Attractive

Auto physical damage losses declined despite 2025 inflationary

pressures, and personal auto liability appears more manageable

given various tort reforms. These factors helped personal auto

insurance losses in 2024 and 2025. We expect the trends to

continue into 2026 and 2027.M

If pricing is down, inflation is up, why haven’t losses caught up? While pricing

decline and inflationary pressure will push up losses for the personal auto segment,

the pressure from litigation costs are now better managed. This should prolong the

industry profitability somewhat, but not completely change the underwriting cycle.

Industry combined ratio should still revert to 100%+, but likely a year later, in our

view. We initially expected near-100% by 2028; we now push this mean reversion to

2029 ( Exhibit 1 ) as favorable trends from tort reform and slower-than-expected

physical damage growth work through the system. To be clear, loss ratio will likely

still deteriorate as pricing declines earn through, and positive tort reform impacts

are likely temporary.