AM Best gave the U.S. commercial insurance lines sector a stable outlook, which means they expect the status quo over the next 12 months.
The stable outlook reflects AM Best’s expectation that commercial lines will remain profitable for insurers and their risk-adjusted capital will remain sound.
Still, insurers will need to navigate “stubbornly elevated” inflation, which is primarily affecting loss costs in property insurance.
“Commercial insurers will therefore need to remain vigilant about inflation, in terms of both pricing and reserving and across both long- and short-tail lines of business,” the rating firm said in its U.S. Commercial Lines Market Segment Outlook last month.
If not for inflation, AM Best would expect to see downward pressure on commercial insurance premium rates. However, early indications suggest that won’t be the case in 2023, as insurers weigh various factors, including the rising costs of reinsurance protection, especially post-Hurricane Ian.
Inflationary pressures are affecting property lines the most; however, social inflation remains relevant for casualty lines. There’s been a broad rise in claims demands, settlements, and judgments, particularly in general liability and medical malpractice.
According to the rating firm, one positive development is that the pandemic’s impact on the industry is fading, partially due to “almost universally favorable rulings” on COVID business interruption litigation.
AM Best expects to see a return of the negative trends in social inflation and associated issues, such as litigation financing, as public attention shifts from the pandemic to other topics. That could spell some breaks for insurance buyers.
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