For commercial lines, most key indicators suggest rates will continue to be soft and competitive well into 2009. However, that being said, continued turmoil in the financial markets together with credit tightening and low investment yields has many believing that the end of the soft market could be near. In 2009, Best expects an overall slowing of rate decreases and a flattening of rates for most lines of business.
For the vast majority of commercial lines insurers, investment impairments and mark to market adjustments have been manageable, as balance sheets remain relatively intact with capital levels that remain appropriate for their ratings. On the other hand, earnings prospects for commercial lines insurers are likely to be dimmed by slower growth and less business opportunities via lower payrolls (unemployment/construction) and a decline in gross receipts (slower economic growth). Weaker investment earnings and moderating cash flows are also likely to impact future earnings prospects due to the decline in new money yields.
A.M. Best does not expect rating actions to move profoundly in one direction, with the number of upgrades/positive outlooks and downgrades/negative outlooks to be fairly balanced over the next year. A.M. Best believes the overall commercial lines segment will continue to maintain adequate balance sheet strength, profitability and liquidity in 2009. Additionally, with a modest semblance of stability, price levels continue to support reasonable profitability.
The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at www.ambest.com/ratings/methodology.
About AM Best
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.