A.M. Best maintains stable outlook for U.S. commercial lines

A.M. Best Co. is maintaining its stable outlook for the U.S. commercial market, despite soft market conditions, the anticipation of less favourable loss reserve releases and a contracting economy.
Commercial lines rates will likely flatten in the latter part of 2010, an A.M. Best release says. The flattening will be prompted by intensified margin compression and the need to compensate for lower investment yields, a weaker overall economy and less robust reserve releases.
A.M. Best also believes loss cost inflation, combined with today’s modest risk-free rate of return, should further fuel price increases.
For the vast majority of commercial lines insurers, investment impairments and mark-to-market adjustments through 2009 have been manageable, as balance sheets remain relatively intact with capital levels that remain appropriate for their ratings, A.M. Best continued.
“On the other hand, earnings prospects for commercial lines insurers will likely be dimmed by slower economic growth, fewer new business opportunities, weaker investment earnings and moderating cash flows due to the decline in new money yields,” the release said.
“While some of the storm clouds have cleared in 2009, Best believes that commercial lines insurers are now at a crossroad. Depending on which direction this segment moves will set the tone for this segment for years to come,” it continued.
“If competition intensifies in 2010, there’s little doubt that this segment will suffer the consequences. Thus far, key indicators and behaviour among most insurers does not suggest that this is the case.”