Global credit ratings agency AM Best has revised its outlook for the US personal lines insurance segment to stable from negative, in line with a corresponding change in the personal auto outlook to stable from negative.
According to the agency, the shift in the personal lines segment outlook is owed to improved rate and pricing conditions, notably within the auto insurance space, along with solid levels of risk-adjusted capitalisation among carriers.
In a new report released by the agency, AM Best states that personal lines carriers were met with multiple challenges following the onset of the COVID-19 pandemic in 2020, which significantly increased loss costs.
Factors contributing to higher costs include the economic impact of inflation in various areas, including: repair parts, labor, medical costs, supply chain disruptions, higher incidence of fatalities/severe injuries and elevated jury awards in litigated claims.
“Carriers recognized the need to respond by aggressively pushing for higher rates to better account for these more volatile trends. Large rate increases have been achieved over the last two years, appearing to get to a more adequate position, particularly within personal auto,” commented Christopher Draghi, director, AM Best.
In addition, US personal lines carriers have dealt with major disruption over the last few years, from elevated severe weather activity to increased reinsurance costs to the compounding impact of inflation.
It’s important to showcase that during this period, many carriers preserved despite escalating losses, and many implemented corrective actions.
However, while not all fared well, with a number of rating downgrades taking place and weaknesses for some being exposed, AM Best noted that the segment overall maintained solid risk-adjusted capitalisation.
“Still, the capital cushion for some companies eroded materially due to sizable operating losses, elevated reserves related to inflationary factors, changes to reinsurance protections, or a combination of all three,” AM Best added.
Furthermore, AM Best’s stable outlook for the personal lines segment indicates that the agency expects market trends to have neutral impact on companies operating across the segment. But, this does not mean that all companies operating in the segment also have a stable outlook, the agency added.
“Carriers that have been slow to address the challenges or do not have the means, expertise, or technological capabilities to keep pace with changes will likely face ratings pressure while those that have been able to capitalize on past efforts to modernize and stay ahead of trend may benefit from effective management,” AM Best concludes.
