AM Best Maintains Stable Outlook for US Commercial Lines Segment

AM Best is maintaining its stable market segment outlook for the US commercial lines insurance sector for 2025.

The rating agency said the stable outlook for the sector is due in part to its persistently strong underwriting performance and improved investment returns, which have boosted US commercial lines insurers' operating profitability.

Best said the US commercial lines segment has sustained reserve adequacy, though that has varied by line of business. Insurers have remained disciplined in their risk selection, terms and conditions, and capacity deployment, the rating agency said.

There are, however, near-term concerns for the US commercial lines segment including elevated casualty claims reflecting the impact of social inflation and its adverse implications for underwriting and reserve margins, Best said. Other headwinds facing the sector include relatively high property claims costs and domestic and geopolitical risks following the US presidential election, the rating agency said.

"Our expectation is that the US commercial lines segment will remain profitable in the aggregate and will be resilient in the face of near- and longer-term challenges," Alan Murray, director at AM Best, said in a statement.

Best said the majority of US commercial lines insurers will continue to have sound levels of risk-adjusted capital. The US commercial lines segment generated favorable underwriting results through this year's third quarter, the rating agency said, as seen in combined ratios averaging in the mid-90 percent range in the past 3 years. Those insurers are expected to continue generating those favorable underwriting results as a result of moderate price increases in most lines of business, as well as net premium growth due to growth in the US economy.

Commercial property insurers' premium growth rates have declined to high single-digit percentages in 2024 from the high teens in 2023, Best said, largely reflecting stabilized reinsurance markets and renewals.

The impact of this year's hurricanes Helene and Milton likely will ensure continued firmness in reinsurance pricing and terms at renewals in 2025, according to Best, but are unlikely to cause renewal adjustments of the magnitude seen in 2023. "With property reinsurance expected to remain relatively stable in 2025, non-life reinsurers have diverted much of their focus to casualty renewals," Mr. Murray said.

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