Stable outlook for personal lines, negative outlook for commercial lines in U.S.: A.M. Best

As auto insurers adopt usage-based insurance and investment yields remain low, A.M. Best Company Inc. recently announced it is maintaining a negative outlook in commercial lines and a stable outlook in personal lines in the United States in 2014.

The Oldwick, N.J.-based ratings firm noted it started its negative outlook in U.S. commercial lines in 2011.

“It reflects the continued concerns for those commercial lines insurers that have yet to recognize loss-reserve deficiencies in their balance sheets and for those likely to take reserve charges during upswings in the market cycle,” A.M. Best stated in a briefing paper dated Jan. 2. Its negative outlook is also based on low investment yields.

In a separate briefing paper — also released Jan. 2 — A.M. Best said it has a “stable” outlook for U.S. personal lines in 2014, and that the “generally favourable” results “continue to reflect the ongoing stability” of auto coverage.

“Key trends of the past several years continue to evolve, particularly regarding the development of usage-based insurance and the ability to understand the uniqueness of each insured’s driving characteristics,” A.M. Best stated. “This next step in developing segmentation is becoming an increasingly important differentiator, with many carriers exploring their options, even if only for defensive purposes.”

Despite the negative outlook in commercial, “A.M. Best believes core accident year margins in commercial lines will continue to improve as prices firm.” In particular, A.M. Best suggested, prices will improve in the U.S. in workers’ compensation, professional liability and general liability.

“Further improvements in 2014 also are likely to be garnered from another year of business migrating into the excess and surplus lines sector, which is more restrictive in coverage and priced much higher than standard market rates.”

In personal lines, weather-related losses in 2013 were “relatively modest,” A.M. Best noted.

“Like the auto line, trends over the past several years in homeowners line continue to evolve,” according to the A.M. Best briefing. “In particular, successful carriers continue to enhance the granularity of their homeowners pricing models, with increased sophistication and enhanced products becoming the norm. In addition, risk management has evolved from risk avoidance to gaining a better understanding of the various risk characteristics, and then pricing accordingly.”