A.M. Best does not expect a turn in the property and casualty market in the near term though the rating agency points to several possible obstacles.

In a 32-page special report titled “U.S. P/C Industry's Profits Persist; Mounting Challenges Loom Closer,” A.M. Best analysts pointed to higher loss costs, expense pressures, pricing trends, competition and the regulatory environment as challenges for the p&c industry.

However, capitalization among p&c insurers is expected to remain strong and operating performance is expected to remain adequate and in line with past years, A.M. Best said.

Regarding personal lines, severity is the concern for automobile insurance, and frequency from wind, hail and tornadoes is the issue in homeowners lines.

To combat the frequency concerns, homeowners insurers will likely use more granular pricing models in the future, as pricing has moved up, A.M. Best said. Insurers are also sharing risk more with policyholders with use of named-peril deductibles, A.M. Best said.

In auto, relatively flat frequency has counteracted the impact of severity, but uncertainty related to how medical costs will shift to auto insurers, given health care reform, remains a worry.

As A.M. Best previously announced, the agency changed its outlook for commercial lines from stable to negative due to competitive conditions in the market, price deterioration and adverse loss reserve development in the future.

The p&c industry saw favorable loss reserve development on prior years for the fifth straight year. In 2010, the industry realized about $8.9 billion in loss reserve development.

The industry documented its first year-over-year increase in net premiums written since 2006 with about $429.8 billion in 2010 compared to $427.5 billion in 2009.

Special Reports /

A.M. Best Expects No P&C Market Turn

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