AM Best Maintains Stable Outlook for U.S. Commercial Insurance in 2025
AM Best has reaffirmed its stable market segment outlook for the U.S. commercial insurance sector heading into 2025. This positive assessment is attributed to the segment’s strong underwriting performance and better investment returns, contributing to solid operating profitability. While challenges persist, insurers in this sector demonstrate resilience and adaptability, supported by sound risk-adjusted capitalization.
Strong Underwriting Performance and Reserve Adequacy
The U.S. commercial lines segment has benefited from favorable underwriting results, with combined ratios averaging in the mid-90s over the past three years. These results reflect insurers’ disciplined approach to risk selection, terms, and capacity deployment. Reserve adequacy remains steady across most lines, though specific variations are notable. Workers’ compensation, for instance, continues to be exceptionally profitable, countering challenges in liability and auto lines.
Other contributing factors include:
- Moderate price increases in most business lines
- Growth in net premiums written, aligned with economic expansion
- Ongoing discipline in underwriting and reserve management practices
This disciplined approach has allowed insurers to maintain profitability, even as external pressures, such as severe weather and increasing loss costs, persist.
Premium Growth and Reinsurance Stability
Commercial property premium growth has slowed in 2024 compared to the steep increases seen in 2023. Stabilized reinsurance markets and more predictable renewal terms contributed to this moderation. Hurricanes Helene and Milton in late 2024 are expected to keep reinsurance pricing firm in 2025, but the sharp rate adjustments seen in previous years are unlikely.
On the liability front, reinsurers are shifting focus, showing a diminished appetite for certain lines, such as general liability and auto. Social inflation trends, particularly those involving litigation funding and nuclear verdicts, continue to influence risk assessment and pricing structures. This environment is likely to lead to further hardening in casualty markets.
Key Reinsurance Trends:
- Casualty renewals are gaining more attention than property reinsurance
- Secondary perils, such as wildfires and winter freezes, are driving recent insured losses
- Non-admitted carriers are increasingly covering risks like cyber, commercial auto, and high-catastrophe property in the E&S market
Auto Safety and Rising Rates
Auto liability’s rising costs are linked to nuclear verdicts and third-party litigation funding. AM Best projects higher rates for commercial auto insurance to keep pace with claims trends. Safety enhancements in vehicles and fleet technologies can play an essential role in mitigating these risks. Here are some key advancements in auto safety:
- Driver Assistance Systems (ADAS): Features like automatic emergency braking, lane-keeping assistance, and blind-spot detection improve driver reaction times and reduce accident severity.
- Telematics: Usage-based insurance programs track driver behavior to encourage safer practices.
- AI and Sensors: Advanced monitoring can help identify potential risks before they lead to incidents.
- Fleet Management Tools: These systems assist businesses in monitoring vehicle performance and driver patterns, promoting preventative maintenance and safer driving habits.
By integrating these technologies, commercial fleets and insurers can work together to reduce risk exposure and enhance overall safety.
Impact of Natural Catastrophes
Natural catastrophe risks are evolving, encompassing not only traditional perils like hurricanes and earthquakes but also secondary events such as convective storms and wildfires. Losses in recent years have been driven primarily by secondary perils, highlighting the need for insurers to adapt their models and pricing structures accordingly. Firms’ ability to handle these shifting risks will be critical in their success over the next year.
Workers’ Compensation Remains a Bright Spot
The workers’ comp insurance line maintains its status as the most profitable segment, entering a second decade of uninterrupted underwriting profitability. Its stability provides a buffer against challenges faced by other lines, such as commercial auto and liability insurance. However, insurers must remain cautious, monitoring potential changes in legislation or workplace safety trends that could affect future performance.
Concluding Thoughts
AM Best’s stable outlook for the U.S. commercial lines insurance sector reflects the industry’s resilience and adaptability in the face of economic pressures, social inflation, and natural catastrophe risks. Insurers’ disciplined approaches to underwriting and risk management have proven effective, but headwinds remain in specific areas.
What does this outlook mean in practice? It underscores the importance of leveraging available technologies to mitigate core risks. For example, telematics can improve safety in commercial auto fleets, while advanced analytics help insurers better assess exposure to emerging risks like secondary perils. These tools are already transforming the industry, and their adoption is likely to accelerate over the next few years.
Looking ahead, insurers and policyholders should work collaboratively to integrate smarter technologies, refine underwriting strategies, and adapt to the ongoing evolution of exposure risks. By doing so, they can build on the solid foundation evident in today’s market and ensure continued resilience in an uncertain future.