Persistently strong underwriting performance during and after the global pandemic – despite substantial economic and capital markets volatility – has prompted AM Best to maintain its “stable” outlook for the U.S. property/casualty commercial lines segment.
Premium rates for most of the major commercial lines of business continued to rise in 2022, following a multi-year peak in late 2020 and early 2021. Rate-on-rate pricing gains fueled commercial insurers’ underwriting performance into 2023.
“Pricing momentum remains positive for most classes of business, with the notable exception of workers compensation and certain management liability classes,” said Alan Murray, associate director of AM Best. Workers compensation has the strongest multi-year underwriting performance and tightly regulated premium rates, resulting in ongoing premium rate decreases in 2022 and 2023.
Commercial lines insurers reported robust underwriting results through the third quarter of 2023. The trend is expected to continue, driven by strong net premiums earned on the heels of prior-year rate increases for most of the major commercial lines of business, as well as growth in net premiums written, thanks in part to the continued economic expansion in the U.S.
Admitted carriers have prioritized more disciplined risk selection, terms and conditions, and capacity deployment, evidenced by the continuation of strong submission flow and growth in the non-admitted/excess and surplus lines (E&S) market. A more direct focus on loss control and claims management is resulting in lower claims frequency and severity.
Higher fixed-income re-investment rates have begun to bolster operating profitability in virtually all lines, especially longer-tailed casualty. Reserve development from prior period exposures is expected to be favorable overall, although at lower levels than in the last few years. However, expected reserve development from prior period exposures will vary widely by line of business.
AM Best cites several near-term concerns, including elevated economic inflation and other domestic and geopolitical risks that could affect the U.S. commercial lines segment. Social inflation, including jury awards and litigation costs, also continues to rise, affecting loss costs in the casualty lines of business.
The report also identifies several emerging markets, including new types of liability stemming from evolving legal and social attitudes toward dietary and other substances, the implementation of new chemical and materials technologies and genetic engineering research, along with climate-related exposures and litigation financing.
Commercial insurers face a diverse underwriting landscape, and managements are increasingly leveraging technology and innovative products to enhance underwriting and pricing decisions with greater visibility into profitability at the account level.
To access the full copy of this market segment report, visit http://www3.ambest.com/bestweek/purchase.asp?record_code=338279
A video with AM Best Associate Director Alan Murray about the U.S. commercial lines market segment outlook is available here .