A.M. Best Weighs In With Stable Commercial Insurance Outlook for 2020

December 9, 2019

The market outlook on the U.S. commercial lines industry for 2020 is stable. according to analysts at ratings firm A.M. Best who cite “improved market conditions and solid levels of risk-adjusted capitalization that have helped insurers weather short-term profitability challenges.”

The outlook considers rating activity and underwriting discipline as well as social inflation and uncertainty over emerging exposures including cyber liability.

The new Best’s Market Segment Report, titled, “Market Segment Outlook: U.S. Commercial Lines,” notes that commercial lines pricing strengthened in 2019 and pressure on terms and conditions lessened.

The report adds that workers’ compensation remains a “strong performer,” despite continued pressure on rates.

There are some concerns, however.

The impact of social inflation on losses and loss reserves for casualty lines remains a “key headwind facing the overall commercial lines segment,” according to A.M. Best. “Societal views of corporate liability, third-party involvement in litigation financing and the emergence of ‘reviver’ legislation extending the statute of limitations on sexual abuse claims have expanded the effects of social inflation into general liability and directors and officers liability,” the report notes. “Gauging how effective the industry’s actions will be in addressing social inflation will be difficult given that many of the factors driving it remain prevalent.”

Other negative factors include property losses being above long-term averages and continued uncertainty about emerging casualty exposures such as cyber liability, opioids and e-cigarettes.

On the bright side, A.M. Best believes the momentum of price increases across commercial lines is accelerating, with companies and producers reporting higher rates as 2019 played out. On the property lines side, the pricing actions reflect catastrophe losses in the U.S. and globally in recent years, with 2016 through 2018 exceeding long-term averages. However, reinsurers in 2019 have put forth higher rates and capacity restrictions to address loss trends. According to the report, some of the largest rate increases in 2019 fell to the commercial property sector.

A.M. Best’s report outlines other factors that are driving its stable market segment outlook, including:

  • A.M. Best expects overall current market conditions — price increases and maintenance of discipline with respect to terms and conditions—to continue through 2020; however, the commercial automobile line remains challenged despite several years of substantial rate increases.
  • Although underwriting results have varied in recent years, due primarily to elevated catastrophe losses, overall operating and net results remain profitable, demonstrating an ability to increase capital organically; and
  • Industry surplus resumed an upward momentum in 2019, with the markets rebounding and lower reported catastrophe losses, and has surpassed its year-end 2017 level.

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