AM Best, the global credit ratings agency, is maintaining its stable market segment outlook on the US commercial lines insurance sector for 2025, supported by the segment’s strong underwriting performance and improved investment returns, both of which have bolstered operating profitability.
According to the agency, the stable outlook reflects AM Best’s expectation that the US commercial lines segment will remain profitable in aggregate, and will be resilient in the face of near and longer term challenges.
In addition, the outlook also reflects AM Best’s view that the risk-adjusted capital of the majority of the segment carriers will remain sound.
In a new report, the agency went on to note that reserve adequacy across the commercial lines segment has been sustained. However, it has varied by line of business, and insurers have maintained discipline regarding risk selection, terms and conditions, and capacity deployment.
AM Best added, that near term concerns for this segment include elevated casualty claims that reflect the multi-year impact of social inflation with adverse implications for underwriting and reserve margins.
Further headwinds across the segment include relatively high property claims costs, in addition to domestic and geopolitical risks following the recent US presidential election.
Moreover, the report also stated that that the majority of commercial lines insurers will continue to have sound levels of risk-adjusted capitalisation.
In fact, US commercial lines insurers overall posted favorable underwriting results through Q3 2024, which according to the agency, were evident by combined ratios averaging in the mid-90 range in the past three years.
The combined ratios are expected to continue sitting in the mid-90 range, primarily due to moderate pricing gains in most lines of business, as well as growth in net premiums written due to the US economy, AM Best added.
It’s important to highlight that premium growth rates for commercial property have declined to the high single-digit percentages in 2024, from the high teens in 2023, in large part reflecting stabilised reinsurance markets and renewals.
The impacts of both hurricanes Helene and Milton in Q3’24 and Q4’24, will likely ensure continued firmness in reinsurance renewal pricing and terms in 2025, but they are unlikely to prompt the shock renewal adjustments of 2023, AM Best noted.
Alan Murray, director, AM Best, commented: “With property reinsurance expected to remain relatively stable in 2025, non-life reinsurers have diverted much of their focus to casualty renewals.”
“Many reinsurers have indicated diminished appetite in a number of general liability and auto lines. Concerns about social inflation trends in U.S. casualty—and to some degree even globally—continue to rise. Reinsurers will likely become more selective with their casualty books, which may result in more hardening,” AM Best concludes.
