Outlook Negative For Commercial Lines, Says A.M. Best

NU Online News Service, Jan. 10, 2:48 p.m. EST

Due to the continued wearing down of loss reserves in the insurance industry, A.M. Best Co. sees the potential for downward rating pressure, especially in the commercial segment.

The rating agency said negative rating actions will outnumber positive ones in 2011, leading to a revision of its overall outlook of the sector to negative from stable.

A.M. Best said workers’ compensation and other lines have already turned from favorable to modestly adverse reserve development and, because more insurance companies reported hopeful recent accident-year results, reserve charges will be more common in 2011.

Still, many commercial insurers have priced rationally, increasing enterprise risk management. Plus, insurers have focused on underwriting due to extremely low interest rates. Therefore, A.M. Best “does not expect rating actions to move profoundly negative.”

Turning to the reinsurance market, A.M. Best said reinsurers have “very strong” capitalization, which will allow them to withstand the soft market. The sector has a stable outlook, A.M. Best said.

Towers Watson, one of the world’s largest reinsurance brokers, said strong capacity, competition and no major catastrophes in the United States pushed down Jan. 1 renewal rates by as much as 10 percent.

Bill Eyre, managing director of Towers Watson’s reinsurance brokerage business, said the top 40 reinsurers at the end of 2010 will have surplus of about $315 billion—a “new high-water mark.”

Capacity will continue to outpace reinsurance demand from U.S. insurers throughout 2011, Towers Watson said. Reserve redundancies in this sector will be a more dominant factor in 2012, which could “potentially reverse current supply-and-demand dynamics,” Mr. Eyre said.

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