Best’s Market Segment Report: AM Best Revises Outlook on U.S. Commercial Lines Insurance Industry Back to Stable
OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has revised its market segment outlook for the U.S. commercial lines segment of the property/casualty insurance industry to stable from negative, citing the relatively modest negative impact of the COVID-19 pandemic, continued strong pricing momentum across the segment and favorable rulings to date on many business interruption coverage disputes.
A new Best’s Market Segment Report, titled, “Market Segment Outlook: U.S. Commercial Lines,” notes that the heightened level of economic uncertainty and the potential impact of the pandemic was a key driver in the revision of commercial lines outlook to negative in April 2020. However, the effect of the pandemic on the performance of the commercial segment has been modest over the past 18 months, with better underwriting results in 2020 than in 2019 on a normalized basis. Additionally, litigation related to denial of coverage for business interruption claims generally has been resolved in favor of insurers. In light of greater clarity about the impact of the pandemic, AM Best also has revised its market segment outlooks to stable for several key commercial lines of business, including workers’ compensation, commercial property and surety.
Throughout 2020 and into 2021, rates for most of the major commercial lines of business rose, with workers’ compensation as the main outlier. AM Best expects rates to keep rising, although the rate of growth is likely to slow through 2022. Higher inflation amid supply chain issues and labor shortages could continue to pressure the prices of goods and materials upward; however, AM Best’s expectation is that the segment will have the capital to manage through any temporary increases in prices as an earnings issue.
Countering the tailwinds expected to support the commercial lines segment’s continued profitability in 2022 are issues that have carried over from pre-pandemic times, including social inflation. This is a particular issue for casualty lines, as these trends impact not just future claims but also require continual re-evaluation of existing claims reserves. As public attention shifts from the pandemic and its impacts back to other issues, AM Best anticipates seeing a return of the negative trends in social inflation and associated issues, such as litigation financing.
The commercial segment also faces the issue of climate risk. The variability in the commercial lines’ reported results in recent years is primarily a reflection of the variability in catastrophe losses each year. The segment has been subject to an increase in the frequency of more severe events, driven not just by climate risk but also by demographics and rising costs to repair and replace damaged property.
Overall, the stable outlook on the U.S. commercial lines segment reflects AM Best’s expectation that on balance the segment will remain profitable, its risk-adjusted capital position will remain sound and the segment will be resilient in the face of these near- and longer-term challenges.
Leading AM Best analysts will review 2022 market segment outlooks for the U.S. insurance industry’s major segments and the global reinsurance industry in an online briefing scheduled for Thursday, Dec. 9, 2021 at 2:00 pm EST. To register for the briefing, please go to www.ambest.com/conferences/USMB2022.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.