A.M. Best Special Report: U.S. Economy’s Fragile Recovery Seeks Firmer Footing in 2012

A.M. Best Co. recognizes that changes in the economic environment can significantly affect insurers' underwriting income, investment income, capital gains, asset values and, consequently, surplus. A.M. Best's ratings process incorporates an analysis of economic factors as one of the sources of risk to an organization's financial health; compares individual insurance companies' operating performance with industry composite benchmarks that are adjusted from time to time for systemic changes in economic conditions (among others); and evaluates companies' financial risks, including the exposure of their investments, assets and underwriting to adverse economic conditions.

This special report presents A.M. Best's outlook for the U.S. economic environment in which insurers will be operating in 2012 and 2013, which will serve as the basis for the analysis of economic factors used in its ratings process.

GDP growth is expected to remain modest in 2012 and 2013, at 2.3% and 2.9%, respectively.

While still high, unemployment is expected to continue its slow slide from its peak.

Inflation is expected to moderate to 2.0% in 2012, then increase slightly to 2.3% in 2013 on the heels of a pick-up in economic activity.

Several downside risks to the outlook exist, especially contagion from the eurozone sovereign debt crisis and domestic policy uncertainty.

Interest rates are expected to remain extremely low over the next two years.

Markets likely will remain volatile into 2012, corresponding with the ongoing turbulence in the eurozone and its sovereign debt crisis.

To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/bestweekreports.asp?rt=ir.

A video interview with the authors summarizing key points in the report is available at http://www.ambest.com/v.asp?v=economy212. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.