A.M. Best revises commercial property market outlook
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A.M. Best & Co. Inc. said Tuesday it has revised its outlook for the U.S. commercial property insurance market from negative to stable, citing ongoing rate increases by insurers and a decline in business interruption claims.
Concerns about inflationary cost pressures could push rates upward through 2022, Best said in the report.
Insurers’ strong risk-adjusted capital and continued underwriting discipline are among the factors supporting the change in outlook, Best said.
However, lingering uncertainty over climate-driven losses and secondary perils and the longer-term impact of COVID-19 continue to pose challenges for the segment, Best said.
Catastrophe activity has remained above average this year, with winter storm Uri in Texas accounting for nearly $20 billion in insured losses and Hurricane Ida likely to result in more than $30 billion.
The Oldwick, New Jersey-based ratings agency noted that increased inflation is driving up the costs of construction.
“The U.S. Consumer Price Index for 2021 is expected to be at a level that has not been seen in over 30 years. Ongoing supply chain issues and labor shortages continue to push up prices for a variety of consumer goods and materials, as well as repairs or replacements of damaged property,” the report said.
Appropriate rate and pricing actions by commercial property insurers as well as ongoing efforts to ensure the adequacy of property valuations will mitigate the effect of higher prices over time, Best said.
Favorable rulings for insurers in business interruption lawsuits arising from the widespread shutdown of businesses during the pandemic were another factor in the revised outlook for the segment.
In the majority of cases to date, insurers have argued successfully that COVID-19 does not result in physical loss or damage to property, Best noted.
