AM Best keeps stable outlook on US personal lines P/C segment

AM Best will maintain a stable outlook on the personal lines segment of the US property/casualty industry for 2018.

The rating agency said personal lines companies have sustained robust risk-adjusted capital positions and have responded to a variety of external pressures, including the barrage of catastrophic activity, with ongoing price adequacy initiatives, prudent risk transfer through reinsurance and risk management advancements.

The Best’s Briefing, titled, “Market Segment Outlook: Personal Lines,” states that the impact of catastrophes in 2017 was felt in the segment’s two main lines of business: auto and homeowner’s insurance.

Since the auto line accounts for the majority of premium in the personal lines segment, its results have a meaningful impact on the segment’s overall financial results. The briefing also notes that deterioration in the auto line had begun prior to 2017, driven by increased loss severity and frequency.

As a result of profitability pressures in the personal auto segment, some smaller companies, particularly those in the independent agency channel, have shifted their focus to the small commercial property segment, in search of growth opportunities. The shift has not led to any significant merger and acquisitions, but the potential remains as carriers look for scale and diversification.

The performance of the property lines in recent years has helped to offset deterioration in the auto lines, but the 2017 weather events likely will end that trend. However, improved technological resources and pricing, as well as favorable reinsurance market conditions have benefited the segment, the rating agency said.

“AM Best recognizes that despite the stable market segment outlook, there are clear market trends that personal lines companies must address effectively. Over the long term, competitiveness will remain heightened as the development of autonomous vehicles, usage-based insurance, ride-sharing and population shifts pressure premium growth. The stable outlook reflects A.M. Best’s expectation that the personal lines companies can effectively navigate their way through these challenges and market dynamics,” the report said.

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