More frequent and severe weather-related events are creating avolatile business environment for the property-insurance line, butfavorable results in auto are offsetting some of the negativeimpact, leading A.M. Best to maintain a stable outlook for thepersonal-lines segment.

“Although property line volatility continues to be a dragon overall results, it has not materially weakened the segment’soverall capital position, and auto results continue to be stabledespite some margin compression,” says A.M. Best in its latestReview/Preview analysis.

For the property line, A.M. Best says it expects more of thesame with respect to the weather. “Whether it’s an issue offrequency, severity, or sometimes both, the expectation is thatregardless of the underlying causes, the erratic and volatileweather patterns experienced over the past few years will continue,and significant rate increases cannot be the only action taken tostabilize results.”

The ratings agency notes that carriers are, in fact, thinkingbeyond just rate increases, implementing risk-managementinitiatives such as mandatory wind/hail deductibles, percentagehurricane deductibles, and roof limitations based on the roof’s ageand condition. “In addition, improved geocoding, greaterunderstanding of risk concentrations and adherence to stricterunderwriting guidelines has partially mitigated overall losses,”A.M. Best says.

The analysis also points to continued to sophistication in howproperty risks are priced. homeowners. “This is particularly trueregarding the ongoing development and expansion of by-peril pricingmodules and more granular pricing metrics across this line ofbusiness,” says A.M. Best.

The analysis notes that as of the 2012 third quarter,personal-lines insurers had been reporting “considerableimprovement” in results due to a lack of catastrophe lossesrelative to 2011. “However,” the ratings agency says, “withSuperstorm Sandy making landfall in the fourth quarter, thepotential for a ‘below-average’ catastrophe loss year was quicklyerased.”

Despite the more frequent and severe weather events, A.M. Bestsays the personal-lines segment remains adequately capitalized, andthe ratings agency attributes that mainly to results in the autoline. The ratings agency says it expects auto to continue toproduce results similar to the past several years.

“Pricing sophistication continues to evolve, particularlythrough telematics...,” says A.M. Best.

The analysis adds, “Another trend, multi-channel distribution –interaction with potential and existing customers across a widespectrum of distribution outlets – remains a key differentiatingfactor for a large portion of the personal-auto market. Inaddition, brand awareness programs and marketing budgets areexpected to continue growing at the current pace.”

The line does have its challenges though. A.M. Best notes thatwhile loss-cost trends “remain generally moderate,” there is somepressure from rising medical and auto-repair costs. “Inaddition, Sandy’s effect on the automobile line was somewhat higherthan anticipated, which may drive movement to additionalrisk-management attention on auto’s exposure to catastrophe loss,”states the analysis.

A.M. Best says its stable outlook implies that most ratingactions in 2013 will be affirmations and that the number ofpositive rating actions will keep pace with negative ratingactions.