The U.S. personal lines insurance industry has earned a continued AM Best market segment outlook of stable heading into 2022 due to strong fundamentals in the sector, the ratings entity said in a new report.

Factors in the sector’s favor include strong risk-adjusted capitalization, underwriting actions limiting volatility in the homeowners segment and the acceleration of pandemic-era technology adoption, AM Best noted.

AM Best said the segment handled its 2021 challenges well, a noteworthy accomplishment considering the year included above-average catastrophe activity and a return to pre-pandemic frequency trends, as well as increased loss cost severity

Risk-adjusted capitalization levels remain robust heading into 2022, with positive cash flows and favorable liquidity further supporting the position, the report concluded.

Rate actions in the homeowners segment returned in late 2020 and continued throughout 2021, which was necessary as catastrophe activity remained above average in 2021. Along with other various underwriting actions, carriers were able to limit the impact of catastrophe losses in 2021. However, secondary perils have become just as problematic, and given the escalating challenges of climate risk, personal lines insurers are planning for a greater number of potentially worse catastrophe events amid higher reinsurance pricing.

Technology initiatives to improve personal lines insurers’ underwriting and pricing tools picked up significantly during the pandemic. Insurers are seeing auto claims frequency rebound alongside adverse severity trends at the same time that the industry is facing major supply chain disruptions and higher inflation, which are resulting in higher costs for materials and parts. Given these pressures, innovative use of technology and data analytics to strengthen underwriting, claims handling and ratemaking remain key to reaching profitability targets, AM Best concluded.

The full Best’s Market Segment Report is “Market Segment Outlook: U.S. Personal Lines.”

Source: A.M. Best