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FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 14, 2020 01:47 PM (EST)
AM Best has assigned a negative market segment outlook to the U.S. commercial property insurance segment due to uncertainty over business interruption legislation from the COVID-19 pandemic and increasing frequency and severity of natural catastrophes, owing in part to longer-term effects of climate-related risk.
With its Best’s Market Segment Report, “Market Segment Outlook: US Commercial Property Insurance,” AM Best does not expect significant claims activity in commercial property due to the pandemic; however, AM Best does foresee significant litigation expenses stemming from defense costs for denial of coverage claims related to business interruption coverages.
This uncertainty about the duration of the pandemic and its impacts, as well as management of climate-related risk, are key drivers in the negative outlook. Other factors supporting the negative outlook include:
In order to stay competitive, AM Best believes insurers need to innovate to adapt to the ever-changing needs of their consumers. For property underwriters, escalating frequency and severity of extreme weather-related events have placed the spotlight on the interconnectedness of insurance risk, climate-related risk and profitability. Insurers are starting to focus on a more holistic approach to climate-related risks by integrating them as part of their enterprise risk management efforts.
Commercial property insurers will also have to determine if changes to their risk appetites are warranted based on the impact of COVID-19 and recent onset of civil unrest in metropolitan areas. Factors partially offsetting the negative outlook include the strong risk-adjusted capital positions of segment carriers, along with accelerating rate increases and the hardening market conditions.
Despite the hardening conditions, the U.S. commercial property market is not yet in a definitive hard market state, as there is enough capital and surplus to meet the demand for coverage. However, it is a much more difficult market for buyers to navigate. Insurers are making underwriting decisions based on profitability concerns rather than market share desires, which is driving reduced capacity utilization decisions, and directly impacting the cost of capacity. Finding a balance between ensuring profitability and managing the financial stability may begin to get tougher for companies if more-extreme weather patterns continue to emerge.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=304129 .
To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp .
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.