A Tale of Two P/C Insurance Segments From A.M. Best

A.M. Best Co. issued a stable 2012 outlook for P/C personal lines segment. That implies that the majority of 2012 rating actions for this segment are likely to be affirmations, with a fairly balanced distribution of negative and positive rating actions.

On the other hand, the ratings agency gave a negative 2012 outlook for the P/C commercial lines segment. That means that while the vast majority of rating actions will be affirmations, negative rating actions will outnumber positive rating actions during 2012.

“Divergent trends are influencing rating outlooks for the various segments of the property/casualty industry, with personal lines continuing to benefit from solid performance in auto insurance, and commercial lines carrying on the struggle to turn pricing decisively upward. Balance sheets remain strong but susceptible to threats in both segments,” said A.M. Best.

A.M. Best said that similar to past several years, results in the personal lines segment reflect two divergent trends among the segment’s main lines of business – automobile and homeowners. The auto line continues to perform well, with adequate and stable returns. This is in contrast to the extreme volatility associated with the property lines of business due to the effects of continued weather-related losses.

The ratings agency said that given that the auto line represents more than 60 percent of the segment’s net written premium, the outlook remains stable. While some geographically and property concentrated writers recently have come under rating pressure, A.M. Best said it believes that from an overall segment perspective, maintaining the stable outlook is appropriate.

On P/C commercial lines, A.M. Best said that while recent pricing trends are encouraging, the ratings agency remains skeptical that a long-term reversal in market pricing has arrived.

It said that given the fragility of the U.S. economy, the willingness and resolve of insurers to sustain further positive rate momentum in the small- to mid-size accounts will be tested by the purchasing power of Main Street American businesses — many of which are already strained by sluggish economic growth. As for large accounts, any increase in pricing will face pressure from insurance brokers and risk managers. Despite these headwinds, further pricing momentum through 2012 is expected for certain lines of business such as commercial property and workers’ comp.