The commercial auto sector continued to weigh on the profitability of U.S. property/casualty insurers during 2016 and will likely see continued rate increases, according to a report from Fitch Ratings Inc. released Thursday.

“The commercial auto line continues to create a profit drag for U.S. property/casualty insurers,” Fitch said in its U.S. Commercial Auto Insurance Market Update.

The poor performance in 2016, featuring the worst underwriting performance for the line since 2001, according to Fitch, will drive rate increases that are in sharp contrast to the bulk of the property/casualty sector, which has seen continued softness.

“Commercial auto insurance premium rates continue to increase in response to consistent underwriting losses, sharply contrasting with pricing trends in commercial lines overall that fell for more than two years,” Fitch said in its report. With 5.6% growth in 2016 direct liability premiums written, commercial auto grew at the fastest rate of any major commercial insurance market segment, Fitch added.

The 2016 industrywide commercial auto combined ratio reached a 15-year high of 110.4%, and the segment has produced an underwriting loss for six years running after years of underwriting profits.

“Challenges, such as drivers with insufficient training and experience, and distracted driving-related accidents contribute to these loss trends,” the report said.

A deteriorating claims environment and inadequate reserves also spell trouble for the commercial auto sector.

“Unfavorable claims experience continues to trouble commercial auto insurers. Loss severity remains difficult to manage due to growing larger loss incidents and higher costs from claims litigation,” Fitch said.

Adverse reserve development from prior underwriting periods has hit property/casualty insurer results for the past five years, said Fitch, due to both claims inflation and poor underwriting and pricing.

“Despite premium rate increases in 2016, commercial auto insurance results continued to deteriorate as unfavorable claims trends promote continued high loss ratios and increased adverse reserve development,” James Auden, managing director with Fitch Ratings, said in a statement accompanying the report.

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