AM Best Gives Personal Lines a Negative Outlook

Late last week, AM Best revised its outlook on personal lines. Due to a significant deterioration in the results of personal auto insurers, Best has downgraded personal lines from stable to negative.

The ratings firm said severely rising loss costs, pressures on pricing and rapidly rising reinsurance costs are part of the reason.

“Given inflationary pressures impacting loss costs and deteriorating loss ratios, we now expect personal auto insurance segment results to worsen,” AM Best said in a statement on the change.

Company senior director, Richard Attansio said reinsurance is a huge factor in Best’s revision. “Rising reinsurance costs can pressure operating performance and balance sheet strength if lower levels of reinsurance protection result in higher net probable maximum losses or net retained losses that are significant enough to erode surplus,” he said. “Primary carriers may struggle to pass these higher costs through to their customers due to hurdles from regulatory restrictions in certain states.”

Secondary issues also came into play. They’re weather related incidents like earthquakes, tornadoes and hurricanes, and crises like wildfire.

Another problem insurers face is keeping up with technology that improves the bottom-line. “The best-performing auto and homeowners’ insurers have invested significant resources into technology to improve their underwriting and pricing tools,” he said. “Those carriers that are slow to adapt to the challenges ahead or don’t have the means, expertise or technological capabilities to keep pace with the evolving market trends will likely face pressure.”

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