Best’s P/C outlook: Tepid, especially on commercial lines

Best’s annual outlook for the property/casualty industry:

  • Personal lines – stable (meaning about the same number of upgrades as downgrades)
    • Stable auto industry
    • Improving risk management, particularly in HO lines (read: better handling of cat aggregates)
    • Solid risk-adjusted capitalization
    • Challenges include uncertain economy, higher loss costs, weather losses, expense management and competition in the market.
  • Commercial lines – negative (mostly affirmed ratings, but upgrades < downgrades). Combined ratio will drift past 100.
    • Lower rates
    • Higher loss costs
    • Fewer reserve releases from prior years
    • Sluggish economy
    • Workers comp and other liability will be trouble spots as their recent AY estimates are getting more optimistic (read: too low).
  • Reinsurance – stable (mostly affirmed ratings, but upgrades = downgrades)
    • Helped by low cat losses
    • Doing OK considering soft market is moving into fifth year
    • Better investments opportunities (Read: rising stock prices) help boost capital
    • Top line hurt as reinsurers remain disciplined, letting business go. Also ceding companies are keeping more business net.
    • As a result, reinsurers are moving to short-tail business. They can’t get big investment returns today and don’t want to have money tied up in long-term casualty if inflation hits.
    • Reinsurance outlook could turn negative if:
      • Poor capital management
      • Further pricing erosion, especially in terms and conditions.
      • Inflation hits

More here. Forecasts for other insurance sectors here.

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