Best’s Market Segment Report: AM Best Maintains Stable Outlook on U.S. Commercial Lines Insurance Segment

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has maintained its market segment outlook for the U.S. commercial lines segment at stable, noting its strong underwriting performance throughout the COVID-19 pandemic and amid the ongoing economic volatility.

Sharply higher fixed-income re-investment rates will serve to bolster profitability across all commercial lines, but especially in the casualty business. Positive pricing momentum, though past its peak level, is also a positive factor, according to a new Best’s Market Segment Report, titled, “Market Segment Outlook: U.S. Commercial Insurance.” In addition, pandemic’s diminishing impact on commercial lines insurers continues to be felt, reflecting in part almost universally favorable rulings on many business interruption coverage legal disputes.

However, headwinds entering 2023 are clearly more pronounced than a year ago, and commercial lines insurers will be pressed to sustain pricing adequacy and to prepare for contraction of market opportunities and potential increased litigation. This is being driven by stubbornly elevated inflation, reflecting supply-chain disruptions and increased commodity and labor costs that are driving loss costs in the property lines. Social inflation costs, which include jury awards and litigation expenses, are expected to rise, affecting the casualty lines in terms of prospective underwriting and reserve margins.

Another key and potentially detrimental factor is the growing fear in some quarters of an economic recession in 2023, including disruptions in important economic segments and workforce dislocation, with a potential impact on certain professional liability segments and other lines.

“The stable outlook reflects our expectation that, on balance, the segment will remain profitable, its risk-adjusted capital will remain sound, and the segment will be resilient in the face of these near- and longer-term challenges,” said Michael Lagomarsino, senior director, AM Best.

The report also notes that commercial lines insurers have reported positive robust underwriting results through the third quarter of 2022 and are expected to continue to do so, driven by strong net premiums earned on the heels of prior year rate increases and continued growth in net premiums written. Segment earnings have also benefited from lower catastrophe losses for the commercial lines in 2022, notwithstanding the severity of Hurricane Ian in the third quarter, as well as from higher underlying underwriting gains and net favorable prior year reserve development.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=326729.

To view a video with AM Best Associate Director Alan Murray on the U.S. commercial lines insurance segment outlook, please visit http://www.ambest.com/v.asp?v=ambpccloutlook1222.

Leading AM Best analysts will review 2023 market segment outlooks for the U.S. insurance industry’s major segments, including DUAE and the global reinsurance industry in an online briefing scheduled for Tuesday, Dec. 13, 2022, at 2:00 pm EST. To register for the briefing, please go to www.ambest.com/conferences/USMB2023.

To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp.

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.

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