Credit rating organization A.M. Best Co. issued a prediction for a stable outlook in the personal lines insurance segment this year, based on what it sees as continued operating profitability, strong balance sheets and anticipation of ongoing underwriting discipline. .
Although financial results deteriorated modestly in 2007 relative to prior years, they remained favorable because of price adequacy, underwriting segmentation, modest catastrophe losses and continued risk management initiatives, A.M. Best said. Last year’s results reflected increasing loss-costs trends as well as competitive market conditions – trends which the organization said should continue in 2008, along with additional modest declines in overall financial performance.
However, results are projected to remain adequate with a very modest underwriting gain in 2008, and overall balance sheet strength remains solid following several years of robust surplus growth.
A key risk factor in 2008 will be carriers’ approaches to pricing in a competitive environment along with a shift in underlying loss-cost trends, A.M. Best said. As the auto loss frequency declines—evident for the last several years—have begun to moderate along with an increase in severity, cycle management has become a critical discussion point in the A.M. Best rating assessment. As a result, companies looking for favorable changes in their respective ratings will need to demonstrate their underwriting discipline and ability to sustain favorable results prior to ratings upgrades or the assignment of a positive outlook.
It is plausible that the severity of the soft market cycle for the personal lines segment may be tempered relative to prior market cycles, given the underlying structural changes in terms of underwriting and pricing segmentation, A.M. Best said. Factors that could negatively impact the segment include the possibility of irrational market-based pricing decisions, catastrophes and regulatory mandates. Despite these risks, the remains cautiously optimistic with regard to carriers writing predominantly personal lines and their approach to pricing in this environment due to the improved segmentation, product differentiation and need for underwriting discipline given the general economic environment and volatile investment markets.
Source: A.M. Best Co.
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