AM Best has maintained its stable market segment outlook for the US commercial lines insurance sector for 2025, citing strong underwriting performance and improved investment returns that continue to support operating profitability.
The segment has demonstrated reserve adequacy, though it varies by line of business, and insurers have maintained discipline in risk selection, terms, and capacity deployment.
However, the industry faces challenges, including elevated casualty claims influenced by social inflation and high property claims costs. Additional risks stem from domestic and geopolitical developments following the US presidential election.
Alan Murray, director at AM Best, commented that the sector is expected to remain profitable overall despite these challenges, benefiting from sound risk-adjusted capitalization levels among most insurers.
“Our expectation is that the US commercial lines segment will remain profitable in the aggregate and will be resilient in the face of near- and longer-term challenges,” Murray said.
According to the report, commercial lines insurers delivered favorable underwriting results through the third quarter of 2024, with combined ratios averaging in the mid-90s over the past three years. Moderate pricing gains and premium growth linked to the US economy have supported these outcomes.
Premium growth for commercial property slowed to high single-digit percentages in 2024, compared to the high teens in 2023, reflecting a stabilizing reinsurance market.
Hurricanes Helene and Milton, which struck in the latter half of 2024, are expected to sustain firm pricing in reinsurance renewals for 2025 without triggering the significant adjustments seen in 2023.
Murray noted that reinsurers have shifted much of their focus to casualty renewals, with diminished appetite in general liability and auto lines due to concerns about social inflation.
Commercial insurance rates have continued to rise, though at a slower pace than in previous years. Workers’ compensation remains an outlier, with rate decreases continuing due to tightly regulated pricing and favorable underwriting performance driven by higher payrolls and lower claims frequency.
Inflationary pressures have affected underwriting and reserving margins, but rising interest rates from 2022 to 2023 have provided relief through improved investment income. Insurers are expected to focus on maintaining pricing discipline to ensure adequate risk-adjusted returns.
Commercial insurers are increasingly adopting innovative technologies to enhance data analysis, risk selection, and operational efficiency. Key initiatives include predictive analytics, big data applications, and artificial intelligence to improve pricing accuracy and streamline processes. These efforts aim to provide a competitive edge in the small and medium-sized risk market, where speed and consistency are critical.
The return of court systems to pre-pandemic productivity levels has largely restored historical claims trends, though the industry now faces heightened embedded risks. Emerging liability exposures, such as those related to climate change, "forever chemicals" (PFAS), and mental health impacts linked to technology, are areas of ongoing concern.
Litigation financing has also grown, potentially extending settlement periods and increasing verdict sizes, further challenging casualty insurers.
What are your thoughts on this story? Please feel free to share your comments below.
