A.M. Best Co. said it will maintain a stable outlook for the personal lines segment in 2006 based on its favorable risk-adjusted capitalization and consistently strong operating profitability.
Despite the impact from an unprecedented hurricane season in 2005, the Oldwick, N.J.-based agency predicts the segment will generate an underwriting profit for the third consecutive year.
With private passenger automobile liability and physical damage lines accounting for more than 60 percent of net written premium for the sector, the personal lines segment's strong profitability has benefited greatly from favorable frequency and severity trends, according to A.M. Best.
In addition, utilization of enhanced pricing models by the majority of companies has also contributed to the segment's outstanding underwriting profitability, despite a recent modest softening of rates and an increase in advertising expenditures.
Although significantly impacted by hurricane losses, homeowners' combined ratio was only slightly greater than break-even. A disciplined underwriting approach focused on price adequacy, policy exclusions and increased deductibles were all contributing factors that limited the overall loss to a manageable level, Best said.
Also, a material amount of losses were ceded to third-party reinsurance companies, lessening the overall impact on the segments' underwriting performance.
The stable outlook for 2006 contemplates that the favorable automobile frequency and severity trends will not dramatically deteriorate, while rates will only modestly soften.
Despite consideration for an increase in hurricane activity, as predicted by many meteorological experts, A.M. Best is projecting an underwriting profit for the homeowners' line of business. Contributing to this return to profitability is an expectation that risk mitigation initiatives will continue to be refined in reaction to recent hurricane activity, as well as continuation of rate adequacy.
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