U.S. Personal Lines Outlook Continues to Be Negative: AM Best

The U.S. personal lines insurance industry faces too many daunting challenges, leading AM Best to maintain its negative outlook.

The outlook for personal lines was changed to negative in September 2022—at first due in large part to the performance of auto insurers. This year, AM Best changed its view of the homeowners insurance industry to negative from stable, and it does not sound as if the overall negative outlook will change soon.

“A return to underwriting profitability for the segment over the near term appears highly unlikely,” AM Best said. While risk-adjusted capitalization remains solid for most, the capital cushion for some insurers has eroded due to underwriting losses, the agency added.

In a new report on the segment, the industry rating agency said staying ahead of current adverse trends has been challenging even as insurers look to increase rates— potentially long process with multiple regulatory jurisdictions.

“Before the heightened inflationary pressures, carriers were generally able to address rate needs with modest rate increases,” AM Best reported. “However, as the magnitude of increases grew in line with trends in the broader economy, companies accelerates both the frequency and the degree of rate filings.”

The headwinds faced by auto insurers have been well-documented—higher repair costs, rising medical costs, increasing fatality rates, and parts and labor shortages. These factors were enough for AM Best to change its outlook of the segment more than a year ago. But this year, difficulties in homeowners insurance added to the problems.

Other than losses sustained from hurricanes, wildfires and flooding, secondary perils have grown in frequency and severity, and these events tend to fall within companies’ net retentions. This possibility is more prevalent with recent challenges in the reinsurance market that have driven higher retention levels.

“In some cases, the challenging environment has exposed weaknesses in insurers’ enterprise risk management,” AM Best said.

This article was previously published by Insurance Journal. Reporter Chad Hemenway is the National Editor of Insurance Journal.