Grading A.M. Best Co. said Tuesday that it maintains its "negative" outlook for the U.S. commercial line segment for 2021 amid ongoing uncertainties related to COVID-19 and its economic downturn. Insurers are facing continued pressure from higher reinsurance levels and increased disaster losses, Best said in its report on the sector.
The Oldwick, New Jersey – based credit rating agency in April had revised its outlook for the US commercial line segment to negative from stable, reflecting significant uncertainty about the virus and its potential impact on the US economy.
"Uncertainty factors related to COVID-19 will provide a challenging operating environment for the commercial segment for 2021
Despite promising news about COVID-19 vaccines and increased confidence that the economic conditions will improve, it may take several months for these vaccines to become widely available and administered, said Best.
The resurgence of social inflation when the courts reopen, higher reinsurance levels and tighter conditions and rising loss costs are among the factors that will continue to negatively affect the segment, said Best.
The upward pricing continued unabated for most commercial lines this year, especially for medium and large insured, said Best.
"Increased reinsurance costs and expected lower future investment income (as interest rates remain low for to support economic recovery) are key factors that support the pricing step, "the report said.
Increased disaster losses and the need to adjust accident rates to long-term trends in loss costs also contribute to the insurer. s insurance discipline.
Insurers must also take valuations and insurance measures to address uncertainty associated with secondary risks, such as wildfires, convective storms and floods, Best said. for losses in connection with COVID-19 is far from over.
In addition to the pandemic crisis, the negative factors facing the industry are not expected to be resolved soon, Best said.
"Climate risk, social inflation and the persistently low interest rate environment are now well-established secular trends that the industry will need to negotiate well into the future," Best said in the report.
The segment's strong risk-adjusted capital base, appropriate corporate risk management program and a generally low-risk investment method "should enable the outlook to be revised to stable when the US business climate returns to a more normal position," said Best.
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