AM Best is maintaining its stable market segment outlook on the U.S. commercial lines insurance sector for 2025, due partly to the segment’s persistently strong underwriting performance and improved investment returns, which have bolstered operating profitability.

Reserve adequacy in the commercial lines segment has been sustained, although it has varied by line of business, and insurers have maintained discipline regarding risk selection, terms and conditions, and capacity deployment, according to AM Best’s “Market Segment Outlook: US Commercial Lines.”

AM Best said near-term concerns for this segment include elevated casualty claims that reflect the multi-year impact of social inflation with adverse implications for underwriting and reserve margins. Additional headwinds include relatively high property claims costs, in addition to domestic and geopolitical risks following the U.S. presidential election.

“Our expectation is that the U.S. commercial lines segment will remain profitable in the aggregate and will be resilient in the face of near- and longer-term challenges,” said Alan Murray, director, AM Best, in a statement.

The majority of commercial lines insurers will continue to have sound levels of risk-adjusted capitalization, the report continued.

“US commercial lines insurers overall reported favorable underwriting results through the third quarter of 2024, as evidenced by combined ratios averaging in the mid-90s the past three years, and are expected to continue to do so, driven by moderate pricing gains in most lines of business, as well as growth in net premiums written due to the US economy,” the report continued.

“The notable exceptions to price increases are workers’ comp and certain specialty casualty classes (e.g., D&O and cyber), although the profitability of the workers’ comp line remains favorable.”

Property Segment

Premium growth rates for commercial property have declined to the high single-digit percentages in 2024 from the high teens in 2023, in large part reflecting stabilized reinsurance markets and renewals, the report said.

The impact of Hurricanes Helene and Milton in the third and fourth quarters of 2024 will likely ensure continued firmness in reinsurance renewal pricing and terms in 2025—but are unlikely to prompt the shock renewal adjustments of 2023.

“With property reinsurance expected to remain relatively stable in 2025, non-life reinsurers have diverted much of their focus to casualty renewals,” Murray said.

Liability Segment

Many reinsurers have indicated diminished appetite in a number of general liability and auto lines, said the report, noting that concerns about social inflation trends in U.S. casualty—and to some degree even globally—continue to rise.

Reinsurers will likely become more selective with their casualty books, which may result in more hardening, AM Best said.

“Admitted carriers appear to be maintaining caution in both property and liability lines, leading significant numbers of commercial insureds to seek coverage in the E&S market, which continues to benefit from favorable deal flow,” the report said. “Among the lines often being offered to the E&S segment are commercial auto and D&O liability, as well as high-risk and catastrophe-exposed property, cyber, and other high-volatility coverages.”

Workers’ Comp

Workers’ comp remains the most profitable of all P/C lines and is set to enter its second consecutive decade of uninterrupted underwriting gains, the report said, noting that workers’ comp continues to offset the deterioration in general liability and auto liability programs.

Other highlights from the report include:

• The impact of Hurricanes Helene and Milton in the third and fourth quarters will likely ensure continued firmness in reinsurance renewal pricing and terms in 2025 – but are unlikely to prompt the shock renewal adjustments of 2023.
• Since property reinsurance is expected to remain relatively stable in 2025, non-life reinsurers have diverted much of their focus to casualty renewals.
• The definition of natural catastrophe risk continues to expand from the traditional perils of earthquake, flood, and windstorm in high-hazard zones, to include the impact of secondary perils such as severe convective storms, wildfires, and winter freezes. The report explained that insured losses in recent years have been driven primarily by secondary perils such as severe convective storms.
• Commercial auto and product liability are facing a heightened risk of rising nuclear verdicts fueled by third-party litigation financing. As a result, AM Best expects that rates will increase in these lines to keep up with claims trends.
• Many reinsurers have indicated a diminished appetite in a number of general liability and auto lines. Reinsurers will likely become more selective with their casualty books, which may result in more hardening.

A video of AM Best Director Alan Murray discussing the market segment outlook for the U.S. property/casualty commercial lines segment can be viewed here.

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USA
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Commercial Lines
Business Insurance
AM Best