Best: Stable outlook for US commercial lines industry for 2020

Improved market conditions and solid levels of risk-adjusted capitalisation are the main factors behind AM Best’s decision to maintain a market segment outlook of stable on the US commercial lines industry for 2020. The Best report, Market Segment Outlook: US Commercial Lines, notes that commercial lines pricing strengthened in 2019 while pressure on terms and conditions lessened. Best points to an improving pricing environment and strengthening underwriting practices, including tighter terms and conditions, for most commercial lines of business, together with strong levels of risk-adjusted capitalisation that are weathering short-term profitability challenges. In addition, the workers compensation segment remains a strong performer, despite continued pressure on rates, offsetting some of the negative effects of other lines on the overall commercial lines performance. Set against these favourable factors, the report notes the impact of social inflation on current-year losses and prior years’ loss reserves for casualty lines, property losses above long-term averages in recent years, and continued uncertainty about emerging casualty exposures such as cyber liability, reviver statutes, opioids and e-cigarettes. Best says it believes the momentum of price increases across commercial lines is accelerating, with companies and producers reporting higher rates as 2019 played out. On the property lines side, the pricing actions reflect catastrophe losses in the US and globally in recent years, with 2016 through 2018 exceeding long-term averages. However, reinsurers in 2019 have put forth higher rates and capacity restrictions to address loss trends. According to the report, some of the largest rate increases in 2019 fell to the commercial property sector. The ratings agency expects overall current market conditions – price increases and maintenance of discipline with respect to terms and conditions – to continue through 2020, although the commercial automobile line remains challenged despite several years of substantial rate increases. “We anticipate that most commercial lines will see positive rate change through next year. In the property lines, the price actions reflect catastrophe losses in the US and globally in recent years, with catastrophe losses in 2016 through 2018 exceeding long-term averages. Some of the largest rate increases in 2019 have been in commercial property,” the report states. It adds that casualty rates for most lines have also been moving higher in 2019. “The factors that drove increased auto liability losses are apparently spilling into other casualty lines. Falling under a broad category of ‘social inflation’, insurers have seen changes in litigation patterns, rising jury awards, and a view of contract terms and conditions that is more favourable to plaintiffs and less favourable to insurance companies, as facets of this trend that began to affect commercial auto several years ago. Factors that have emerged more recently, such as societal views of corporate liability, third-party involvement in litigation financing, and the emergence of ‘reviver’ legislation extending the statute of limitations on sexual abuse claims, have since expanded the effects of social inflation into other casualty lines, including general liability and directors and officers liability,” says Best. It also warns that emerging headline liability issues – including cyber liability, opioids, sexual molestation and reviver statutes, as well as injuries related to usage of e-cigarettes, glyphosates, and talcum powder – may drive further increases in loss costs for both current and prior accident years.

Best: Stable outlook for US commercial lines industry for 2020

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