Revealed – outlook for commercial lines sector

The rating agency’s latest Best’s Market Segment Report, titled “Market Segment Outlook” U.S. Commercial Insurance,” said the pandemic’s impact on commercial lines insurers is diminishing, reflected by almost universally favorable rulings on many legal disputes regarding business interruption coverage.

However, there are headwinds going into 2023, and commercial lines insurers may find it challenging to sustain price adequacy and prepare for the contraction of market opportunities and the potential for increased litigation, AM Best said. These headwinds are being driven by continued inflation, which itself is being spurred by supply chain disruptions and increased commodity and labor costs. Social inflation costs, including jury awards and litigation expenses, are expected to rise in 2023, impacting casualty lines in terms of prospective underwriting and reserve margins.

Another potential negative impact is the possibility of an economic recession in 2023, including disruptions in important economic sectors and workforce dislocation. These could negatively impact certain professional liability segments and other lines, AM Best said.

“The stable outlook reflects our expectation that, on balance, the segment will remain profitable, its risk-adjusted capital will remain sound, and the segment will be resilient in the face of these near- and longer-term challenges,” said Michael Lagomarsino, senior director at AM Best.

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The rating agency also said that commercial lines insurers have reported “positive robust underwriting results” through the third quarter, and are expected to continue to do so thanks to strong net premiums.

Segment earnings have also seen the benefits of lower catastrophe losses for commercial lines this year despite the severity of Hurricane Ian. Earnings also benefited from higher underlying underwriting gains and net favorable prior-year reserve development, AM Best said.

Other insurance lines have been impacted harder by the challenges of 2022. A recent report by AM Best found that the US property-casualty sector recorded a $24.3 billion net underwriting loss in the first nine months of the year, and the rating agency recently revised its outlook for the US personal auto insurance sector from stable to negative.

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