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Heading into 2017, Commercial Lines Keeps its A.M. Best ‘Negative Outlook’

Morning Tague Friends!

Yesterday I was meeting with a member and we were discussing the current state of the commercial market.  One of his carriers dropped their rates on a Middle Market account by a staggering amount after finding out a competitor was much lower in pricing.

My input to the member was that we have to expect this type of situation in a soft (ening) commercial market.  Small Commercial is seeing some of this pricing competition, but as the article below details the most pressure on pricing is in middle and large account space.

The one exception to this trend is Auto Insurance, both Personal and Commercial.  We will continue to see rate increases as the carriers adjust to the new normal of higher frequency and severity of claims.

My advice: If you have a $10,000 premium or higher make sure you are asking your underwriter for the best credits if the policy merits credit.  Secondly, you need to give the underwriter the target premium so they know how much to sharpen their pencil.

As a group we continue to lean into Small Commercial and are working everyday to build our books of business with our partner carriers.  The revenue and profit generated by Small Commercial is very consistent which forms a solid base when building an agency.  See my prior post about Small Commercial for a robust look at this segment.

Have a great day!

Tony V

Heading into 2017, Commercial Lines Keeps its A.M. Best ‘Negative Outlook’

December 13, 2016

The commercial lines segment won’t be able to shake the negative outlook A.M. Best assigned it anytime soon. The ratings agency said it will keep that assessment the same heading into 2017, because it expects factors including more intense price competition and stubbornly low investment yields to contribute to market deterioration.

“The segment is being impacted by intensifying price competition in most lines, decreasing levels of favorable development of prior years’ loss reserves and persistently low investment yields, as well as a return to a more historically normal level of catastrophe losses,” A.M. Best explained in its briefing on the sector.

A.M. Best’s forecast echoes market predictions made earlier in 2016 by Fitch and others.

Some of A.M. Best’s assessment highlights:

  • The commercial lines sector remains “strongly capitalized” but this trend is spurring the competitive pricing.
  • Worsening price competition has permeated almost all of the commercial lines sector, “particularly for the business of medium and large insureds, placing top line pressure on most companies.”
  • Companies can get through the continued downturn with advanced analytics and enhanced data that enable a more precise process of choosing/pricing business and managing claims.
  • Workers compensation and general liability rates are still under pressure. Most property lines are still getting hit with rate reduction.
  • Commercial auto rate adequacy is a moving target due to worsening accident frequency and severity, even though rates are still increasing.

  • Pressure on underwriting margins will likely squeeze operating results.


Source: A.M. Best

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