Key conditions for US commercial insurance now ‘past their peak’: AM Best

US commercial insurance lines have what it takes to remain profitable and well capitalized in 2023, but select key conditions are now clearly past their peak, the  AM Best ratings agency said in a report, affirming the sector outlook at ‘Stable.’

“On balance, the segment will remain profitable, its risk-adjusted capital will remain sound and the segment will be resilient in the face of ... near- and longer-term challenges,” authors wrote.

But the trend may be tilting towards increased pressures and lighter tailwinds, analysts seem to indicate.

“Pressures on the US commercial lines segment have clearly increased in 2022, affecting both balance sheet strength and operating performance,” analysts said, with caveat for variation among lines.

AM Best is perfectly happy with performance to date, calling out “positive robust underwriting results” visible through the first 9M of 2022 and likely to continue given price-driven premium growth.

But the pricing party, AM Best notes, is now clearly "past its peak," analysts note.

They cite "positive pricing momentum - though past its peak - throughout the segment, with the notable exception of workers' compensation."

With inflation on a tear, both the palpable economic inflation and incipient social inflation, both loss costs and reserve margins will feel the pinch.

Analysts cite “still favourable aggregate prior period reserve development, despite general tapering in reserves margins and segments such as commercial auto.” Favourable prior period reserve development is dwindling.

Risk-adjusted capital remains “solid,” but H1 2022 markets delivered a “shock” to capitalization, analysts wrote. Hopes may be pinned on a pending investment boost from higher reinvestment yields.

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