Commercial Lines ‘Stable’ With a Close Eye on Inflation

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As a whole, the outlook for the U.S. commercial lines segment continues to be stable, according to AM Best, but the industry rating agency had some warnings in its latest report.

Rate changes at renewal remained strong, catastrophe losses have been lower, underlying underwriting results have been higher, and net prior-year reserve development continued to be favorable, said AM Best in its Market Segment Report. However, the segment could face adversity from inflation.

“Insurer loss costs are likely to rise, as ongoing supply-chain issues and labor shortages continue to push up prices for a variety of consumer goods and the materials, as well as repairs or replacement of damaged property,” AM Best said.

On top of economic inflation, the rating agency said it expects a “return to negative trends in social inflation and associated issues, such as litigation financing” in casualty lines. Claims demands, settlements, and judgements of claims have been rising, requiring re-evaluation of existing claims reserves. Casualty lines have benefitted from favorable loss development over the last decade but the extent has declined, especially in general liability and medical malpractice where there has recently been adverse development, AM Best continued.

Across all lines of business, commercial insurers will need to remain vigilant when it comes to pricing and reserving for inflationary impacts. AM Best said it “views the market as being reasonably disciplined; however, given loss cost inflation and likely slowing growth in exposures owing to uncertain economic conditions, casualty rates in most classes will need to rise at an accelerated rate—or the industry will fail to keep pace.”

AM Best said it concluded that commercial lines will, on balance, remain profitable and resilient. The pandemic on commercial lines “has been modest,” and the declines in loss frequency offset any severity increases. COVID-19 business interruption cases have been “almost universally been resolved in favor of insurers,” AM Best added.

Commercial Lines
Business Insurance
AM Best

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