A.M. Best Revises US Commercial Property Market Outlook to Stable

Citing a variety of factors, A.M. Best has revised its market segment outlook for the US commercial property market to stable from negative.

In a Best's Market Segment Report titled "Market Segment Outlook: US Commercial Property," the rating agency said its revised outlook is based on the strong risk-adjusted capital of insurers in the segment, ongoing rate increases and underwriting discipline, and the decline in business interruption claims, in addition to favorable rulings for insurers thus far.

"Factors such as climate change, the low interest rate environment, and lingering uncertainty about the long-term impact of the COVID-19 pandemic continue to pose challenges for the segment," a Best statement said. "However, the segment's [insurers] have adapted with rate actions, capacity reductions, improvements in catastrophe models, and tightened terms and conditions."

Best noted that at the beginning of the COVID-19 pandemic government shutdown orders aimed at mitigating the spread of the disease closed businesses for months, resulting in a spike of business interruption claims. "The majority of these claims were denied by primary insurers, which led to scores of lawsuits alleging physical losses and asking courts to make insurance companies pay these claims," Best said.

Those lawsuits had the potential for billions of dollars in payouts, a key factor in Best's previous negative outlook for the US commercial property segment. In most of those cases, however, insurers have successfully argued that COVID-19 did not result in physical loss or damage to property, Best said. According to some estimates, 90 percent of federal cases have been decided in the insurers' favor, and 75 percent of state cases, the rating agency said.

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