This morning, A.M. Best made a number of announcements regarding the outlooks of many segments of the insurance industry.
The outlook for the U.S. personal property/casualty segment remains stable. “Divergent trends are influencing rating outlooks for the various segments of the property/casualty industry, with personal lines continuing to benefit from solid performance in auto insurance, and commercial lines carrying on the struggle to turn pricing decisively upward,” the rating agency says. Balance sheets remain strong but susceptible to threats in both segments.
A.M. Best maintains its negative outlook for the commercial lines segment, which implies that while the vast majority of rating actions will be affirmations, negative rating actions will outnumber positive rating actions during the year.
The outlook for the global reinsurance segment holds at stable, supported by continued strong risk-adjusted capitalization, prudent enterprise risk management practices and an improving pricing environment across a broadening spectrum of business classes, A.M. Best says.
The U.S. life/annuity rating outlook also remains at stable. The rating agency says that despite the challenging macroeconomic environment, investment portfolios of U.S. life insurers have held up well, with most insurers reporting relatively modest investment impairments in 2011 and a return to relatively large unrealized gain positions in their fixed-income portfolios. Also the life and annuity sector maintains strong regulatory capital positions, favorable GAAP and statutory operating earnings (i.e., when factoring out accounting anomalies related to hedge accounting and non-recurring events), and continued efforts at improving balance sheet fundamentals through more prudent liquidity and capital management.
A.M. Best revised its negative 2011 outlook on the U.S. health insurance sector to stable. The negative outlook stemmed from concerns over the industry’s ability to implement and manage the various requirements of the Patient Protection and Affordable Care Act (PPACA), as well as the potential for margin compression. The rating agency says that the industry has handled the challenges well over the past year—mainly implementing the early requirements from PPACA, which included numerous benefit changes and the minimum medical loss ratio and rate-review process requirements, both of which took effect in 2011. Also, operating earnings have remained favorable for a second year, and while the industry expected margins to compress, results continued to be favorable for most carriers through late 2011.
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