AM Best has revised its outlook to stable from negative for the U.S. personal lines insurance segment for 2025, citing improved rate and pricing conditions, particularly in the auto insurance space, along with solid levels of risk-adjusted capitalization among carriers.

AM Best also pointed to more accommodating treatment from regulators on rate requests, rising investment yields and the accelerated adoption of technology among carriers.

Offsetting factors include ongoing volatility in reported results for insurers, particularly in the homeowners line of business, as well as elevated loss cost severity due to inflation and more expensive parts in newer vehicles, heightened severe weather activity and higher reinsurance costs, along with tightened terms and conditions, said the AM Best report titled “Market Segment Outlook: US Personal Lines.”

The revised outlook reflects the following positive factors:

• An aggressive push for rate and improved pricing segmentation has led to improved underwriting performance, particularly for personal auto writers.
• More accommodating regulatory treatment of rate requests.
• Solid risk-adjusted capitalization with sufficient liquidity.
• Rising investment yields as lower-yielding bonds mature and are reinvested at higher rates.
• Accelerated technology adoption.
• Improving catastrophe risk management practices.

Factors counterbalancing these positives include the following headwinds:

• Ongoing volatility in reported results, particularly for the homeowners line of business.
• Increasing cost and frequency of weather-related loss activity, which continues to be a significant issue for primary carriers.
• Elevated loss cost severity owing to inflation and more expensive parts in newer vehicles.
• Heightened severe weather activity.
• Elevated reinsurance costs and tightened terms and conditions, including higher overall retentions and co-participation on property lines, driving higher net losses.

Diving into the details of the report, AM Best reflected on the fact that personal lines carriers faced multiple challenges after the onset of the COVID-19 pandemic in 2020 with significantly increased loss costs.

“Factors contributing to higher costs include the economic impact of inflation in various areas (repair parts, labor, medical costs), supply chain disruptions, higher incidence of fatalities/severe injuries and elevated jury awards in litigated claims,” the report said.

“Carriers recognized the need to respond by aggressively pushing for higher rates to better account for these more volatile trends,” said Christopher Draghi, director, AM Best, in a statement. “Large rate increases have been achieved over the last two years, appearing to get to a more adequate position, particularly within personal auto.”

Over the past few turbulent years, many U.S. personal lines carriers persevered despite escalating losses and remained nimble as they implemented corrective actions.

“While not all fared well, with a number of ratings downgrades occurring and weaknesses for some exposed, the segment overall maintained solid risk-adjusted capitalization. Still, the capital cushion for some companies eroded materially due to sizable operating losses, elevated reserves related to inflationary factors, changes to reinsurance protections, or a combination of all three,” the report continued.

The stable outlook for the personal lines segment indicates that AM Best expects market trends to have a neutral impact on companies operating in the segment, but it does not mean that all companies operating in the segment also have a stable outlook.

Source: AM Best