- Segment carriers' strong risk-adjusted capital
- Ongoing rate increases and underwriting discipline
- The decrease in business interruption claims, as well as favorable rulings in lawsuits for insurers to date.
Climate change, the low interest rate environment, and lingering uncertainty about the long-term impact of the COVID-19 pandemic remain challenges for the segment. However, carriers in the segment have responded with rate increases, capacity reductions, improvements in catastrophe models, and tightened terms and conditions.
Businesses shut down and remained closed for months due to government mandates at the start of the COVID-19 pandemic. As a result, the number of business interruption claims from owners claiming lost income due to lengthy closures increased. The majority of these claims were denied by primary insurers, resulting in a slew of lawsuits alleging physical losses and requesting that insurance companies pay these claims.
These lawsuits could have resulted in billions of dollars in payouts, which would have been detrimental to the segment—a key driver of AM Best's previously negative outlook. However, insurers have successfully argued in the majority of cases to date that COVID-19 does not result in physical loss or property damage. According to some estimates, 90% of federal cases have been decided in favor of insurers, compared to 75% of state court cases.
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AM Best is a global credit rating agency, news publisher, and data analytics company that specializes in the insurance industry. The company is headquartered in the United States and operates in over 100 countries, with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore, and Mexico City. Visit www.ambest.com for more information.