A.M. Best Co., the Oldwick, N.J., ratings agency, said Friday that a soft market has emerged in commercial lines insurance, dimming the industry's long-term business prospects after a period of price firming during the hard-market period early this decade.
The outlook is negative for 2006, A.M. Best said after an assessment of the U.S. commercial market, so it expects few rating upgrades or positive rating outlooks to be assigned this year. This outlook does not reflect last year's pricing deterioration, it said, so much as the sector's prospects in the next 12 to 36 months.
In 2005, U.S. commercial lines insurers continued to recognize the benefits of cumulative rate increases and actions taken in previous years to strengthen both core and legacy reserves, the ratings agency said.
Price erosion, loss-cost inflation, and higher reinsurance costs will reduce profit margins in the intermediate term, A.M. Best said. In the near term, however, net underwriting profits are likely to be reported in 2006, assuming more normalized catastrophe losses and continued, though moderate, funding of prior-year reserves.
