US commercial lines market stable: AM Best

The outlook for the US commercial insurance market remains stable despite the ongoing soft period in the cycle, a contracting economy and the financial market crisis.

For commercial lines, most key indicators suggest rates will continue to be soft and competitive well into 2009, said the rating agency.

However, continued turmoil in the financial markets together with credit tightening and low investment yields suggests an end of the soft market could be near, said Best.

In 2009, Best said it expects an overall slowing of rate decreases and a flattening of rates for most lines of business.

‘For the vast majority of commercial lines insurers, investment impairments and mark to market adjustments have been manageable, as balance sheets remain relatively intact with capital levels that remain appropriate for their ratings. On the other hand, earnings prospects for commercial lines insurers are likely to be dimmed by slower growth and less business opportunities via lower payrolls (unemployment / construction) and a decline in gross receipts (slower economic growth). Weaker investment earnings and moderating cash flows are also likely to impact future earnings prospects due to the decline in new money yields,’ according to the agency.

Best does not expect rating actions to move profoundly in one direction, with the number of upgrades and downgrades to be fairly balanced over the next year.

Best predicted the overall commercial lines segment would continue to maintain adequate balance sheet strength, profitability and liquidity in 2009. Price levels continue to support reasonable profitability, said the agency.