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A.M. Best maintains negative outlooks for insurance, reinsurance sectors


A.M. Best Co. Inc. is maintaining its negative outlook for both the global reinsurance and U.S property/casualty insurance sectors because of ongoing challenges facing both, the rating agency said in two new reports.

Adverse loss-reserve development, low investment yields and moderation in commercial lines pricing are all hitting the U.S. commercial property/casualty sector at once, Oldwick, New Jersey-based Best said in “Commercial Lines Rating Outlook Stays Negative; Personal Lines Remain Stable,” released Monday.

“While the adequacy of prior-year reserves will remain the most influential driver for rating movements in the commercial lines sector … profit margins continue to be pressured by low investment yields and another year of new money needing to be reinvested at a time when interest rates remain at historical lows and yield curves relatively tight,” Best said of the challenges facing the commercial property/casualty sector.

Best said it also “recognizes commercial lines insurers' balance sheets and the levels of capitalization maintained by the vast majority of insurers, which remain strong even after considering underfunded reserves.”

Operating results for the commercial property/casualty segment are expected to be profitable in 2015, Best added. The segment's negative outlook was initiated in 2011.

The outlook for the global reinsurance industry was revised to negative from stable in August 2014.

“As compression continues bearing down on investment yields and underwriting margins, this strain on profitability will ultimately place a drag on reinsurers’ financial strength,” Best said in “Weak Operating Fundamentals Keep Reinsurance Sector Outlook Negative,” also released Monday.

Rated balance sheets are well-capitalized and can withstand some stress, and reinsurers are responding to challenges by utilizing greater capital market capacity to help optimize results and reduce net probable maximum losses, Best said in the report.

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