International financial services ratings agency, A.M. Best, has revised its outlook for the commercial lines segment to stable from negative, as a result of an embedded change in the sophistication of both the sector’s underwriting infrastructure and pricing.
Despite the pricing environment remaining challenging and other commercial lines headwinds persisting, the segment has shown resilience and a number of companies have sought to adopt tools that promote increased transparency of business profitability, says A.M. Best.
“We expect that the changes in underwriting and pricing practices have become sufficiently ingrained in the segment’s business that they will prove beneficial, even as the segment continues to contend with the industry’s market cycles,” says A.M. Best.
Despite the revision from negative to stable, A.M. Best expects the commercial lines segment to report an underwriting loss for 2017, primarily as a result of investment results, which the ratings agency says includes realised capital gains.
Surplus is expect to increase modestly despite the projected underwriting loss, and even though catastrophe losses in 2017 nearly increased by 50% when compared with 2016, these were generally within companies’ risk tolerance.
“Many companies’ losses were within the retentions of their catastrophe programs, reflecting the appropriateness of the segment’s enterprise risk management overall – and suggesting that, particularly for the segment’s leading companies, changes in underwriting and pricing fundamentals have resulted in core underwriting results that, in combination with overall strong risk-adjusted capitalization, are allowing companies to absorb shock losses that would previously have strained capacity,” explained A.M. Best.
