While the overall outlook for the property/casualty industry is positive, A.M. Best Co. projects a "negative outlook" for the commercial lines segment.
That negative outlook is a "continuation of what we had last year," said Andrew Colannino, vice president commercial property/casualty at A.M. Best in Oldwick, N.J. The outlook means that there will be more negative rating actions on companies than positive rating actions.
"Basically, it's the same issues that we are facing with the profitability of the commercial lines companies. Their margins are being squeezed because of the low interest-rate environment," he said. "We think there is a deficiency overall of loss reserves so we think companies are going to see less reserve development than they have seen. We see the positive reserve development gradually getting smaller."
In addition, Colannino said, exposures are limited because of the slow growth in the economy.
For 2013, A.M. Best projects a 102.9 combined ratio for commercial lines "and that doesn't really equate to a really strong return on equity because of the low interest-rate environment today," Colannino said.
It was the impact of Superstorm Sandy in late October 2012 storm that blew some clouds in the way of what had been a fairly bright year for the P/C industry until that point, according to A.M. Best's Feb. 4 special report on the industry.
"The impact [of Sandy] has been apparent on income statements throughout the P/C industry, with the industry's underwriting loss increasing $26 billion and net income deteriorating $10 billion during the fourth quarter, based on A.M. Best's estimates of full year 2012 results," the report stated.
Although final numbers were not available before press time, Colannino said the commercial lines segment is estimated to have a combined ratio of 109 percent, with 9.3 points due to catastrophe losses following Superstorm Sandy and other events.
"The companies that are really going to come out of this on good terms," he said, "are those that have reserved adequately, those that have a good underwriting culture and have priced their products correctly, and those that have good risk management programs where they really manage their exposures and their operations well."
--By Anne Freedman
April 12, 2013
Copyright 2013© LRP Publications