A.M. Best has maintained its stable outlook for the personal lines segment as it expects companies to be able to effectively navigate challenging market dynamics, despite the high level of catastrophe losses in 2017.
2017 was a challenging time for personal lines players, as both auto and homeowners’ lines suffered from a series of devastating hurricanes, severe drought and storms, as well as the intense wildfires in California.
However, “segment companies maintain robust risk-adjusted capital positions supportive of their current ratings,” says A.M. Best, adding that prudent risk transfer via reinsurance, ongoing price adequacy initiatives, and risk management advances “have helped mitigate a variety of external pressures.”
The ratings agency states that personal lines players tend to hold a long-term view in their investment portfolios, and also have greater allocations to equities within their portfolios, which, in turn has seen them benefit from “the highly favourable market run, which has further bolstered overall capital and offset some of the recent rise in loss experience.”
Furthermore, A.M. Best warns that the trend of the performance of property lines partially offsetting the deterioration in auto lines, will dampen and possibly end as a result of the catastrophe losses experienced in 2017.
“The stable outlook should not be viewed as an indication of nirvana. There are clearly a number of market trends that personal lines companies must address effectively – key among them, the highly competitive nature of personal auto insurance,” says A.M. Best.
Adding; “The stable outlook reflects A.M. Best’s expectation that the personal lines companies can effectively navigate their way through these challenges and market dynamics – especially, those companies that maintain solid risk-adjusted capitalisation, have a keen focus on pricing segmentation/granularity with defensible competitive advantages, and carefully and continuously calibrate and monitor their risk management. Those that cannot do so may face adverse risk selection.”
