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Property/casualty outlook negative, reinsurance outlook stable: Best

Posted On: Jan. 8, 2014 12:00 AM CST

Property/casualty outlook negative, reinsurance outlook stable: Best

A.M. Best Co. Inc. on Wednesday said it will maintain its negative outlook for the commercial lines insurance segment this year while maintaining a stable outlook for the reinsurance industry.

In a briefing titled “P/C Commercial Lines Outlook Remains Negative,” the rating agency said its property/casualty outlook reflects the “uncertainty around loss-reserve development and continued low profit margins driven by low investment yields.”

It noted that its negative outlook for the commercial insurance industry has been in effect since 2011.

Oldwick, N.J.-based Best said although it believes prior-year reserves will remain the most influential driver of rating movements in commercial lines, consolidated 2014 operating results for the segment “still will be profitable, driven by continued, although moderating, rate increases, improving macroeconomic conditions and the absence of significant catastrophe losses.”

Despite the negative outlook, Best said it recognizes commercial insurers' strong capitalization.

“For many commercial lines insurers, A.M. Best expects balance sheets will continue to be right-sized in 2014 as insurers continue to return capital to stockholders through issuing dividends and repurchasing stock,” Best said.

Best's action came a day after Barclay's Capital Inc. downgraded its outlook on the property/casualty industry as whole to neutral from positive, “because the industry is approaching a negative inflection point: Pricing power is poised to deteriorate, peak cyclical earnings are being achieved and valuation multiples appear full,” Barclay's said. It added that the commercial property/casualty pricing “could turn negative at mid-2014.”

Best also said it is maintaining its stable outlook on the global reinsurance industry.

“The stable outlook is predicated on strong risk-adjusted capital, discerning enterprise risk management and a slow improvement in the global economic environment underpinned by the United States, which represents the world's largest insurance market,” Best said in “Global Re Outlook Remains Stable, Abundant Capital Weighing on Market.”

Best noted, however, that capital continues to flow into the reinsurance market from third-party investors such as hedge funds, “creating additional underwriting pressure within the overall reinsurance segment as available capacity is reallocated to classes other than property catastrophe.”