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FOR IMMEDIATE RELEASE
OLDWICK - JANUARY 05, 2015 03:47 PM (EST)
A.M. Best has maintained its negative outlook for the global reinsurance sector and the U.S. property/casualty industry's commercial lines segment, along with a stable outlook for the U.S. personal lines segment.
The commercial lines outlook reflects A.M. Best's ongoing concerns from potential adverse loss-reserve development, low investment yields and a moderation in commercial lines pricing. This segment's negative outlook was initiated in 2011 and signals A.M. Best's continued concerns for those commercial lines insurers that have yet to recognize loss reserve deficiencies on their balance sheets and the fact that current pricing levels, as well as reserves, may not be supportive of future loss-cost trends.
While the adequacy of prior-year reserves will remain the most influential driver for rating movements in the commercial lines sector, operating results for the segment in 2015 are expected to be profitable. On the other hand, profit margins continue to be pressured by low investment yields and another year of new money needing to be reinvested at a time when interest rates remain at historical lows and yield curves relatively tight.
At the same time, A.M. Best has also maintained a stable outlook for the U.S. personal lines segment. The segment's results continue to reflect the consistency of the auto line, with generally favorable, low-volatility performance posted on a year-over-year basis. However, while results remain consistent, there are a number of dynamic trends that likely will influence the segment in future years, including the evolution of sophistication in pricing, greater refinement of multi-variate pricing models as carriers engage in the development of usage-based insurance and an increased focus on deepening customer relationships.
Over the near term, the market trends of pricing sophistication, scale/efficiency and risk management are unlikely to materially impact ratings in the personal lines segment; however, the longer-term ramifications could be more significant, particularly for those carriers that do not effectively adapt to this dynamic market.
In addition, A.M. Best will maintain its negative outlook for the global reinsurance sector, citing the significant ongoing market challenges that will hinder the potential for positive rating actions over time and may translate into negative rating pressures. A.M. Best revised its ratings outlook on the reinsurance industry to negative from stable in August 2014.
As compression continues bearing down on investment yields and underwriting margins, this strain on profitability will ultimately place a drag on reinsurers' financial strength. At this point, A.M. Best is taking a view longer than its typical 12-to-18 months. While A.M. Best does not anticipate a significant number of negative outlooks or downgrades over the very near term, the market headwinds at this point present significant longer term challenges for the global reinsurance industry.
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