Best says it believes “the personal-lines segment is adequately positioned to handle a ‘normalized’ weather year without a corresponding change in outlook.”

On the commercial side, Best gives an overall negative outlook rating, saying it believes that in 2012, “negative rating actions will outnumber positive actions during the year.”

While prices are on the upswing for the first time in five years, Best says it is skeptical “that a long-term reversal in market pricing has arrived,” adding that cycles come in years, not quarters.

A fragile economy will test the buying power of Main Street America’s businesses, which are still struggling. Large accounts will continue to resist increases, but Best says pricing momentum is expected to be on the upturn for some lines, such as Commercial Property and Workers’ Compensation.

In a separate outlook, also released on Jan. 9, Best says the global-reinsurance market seems “poised for a turn,” but warns that soft-market pricing could still return in a hurry.

Best says, “Over the past five years, reinsurers generally experienced declining demand for reinsurance capacity while primary companies increased retentions across the board.”

Recent global catastrophes, volatility of assets and catastrophe-model changes, though, have conspired to change primary companies’ perception of risk, which has increased demand for reinsurance, Best adds.

“This increasing demand for reinsurance cover has helped to bolster current pricing for property catastrophe-related business,” says Best, noting that it expects improved pricing, terms and conditions that will support low double-digit returns on equity for reinsurers in 2012.

But the ratings agency cautions that the pricing increases may be short lived. “History has proven that the market has a short memory, and if the sting of recent loss events quickly fades, the soft market may return,” Best says.

Best gives the reinsurance industry a stable outlook for now, but says if soft-market pricing does re-emerge in 2012, the capital strength of the segment would slowly erode—and the agency would consider revising the ratings outlook to negative, “as pressure on ratings would be expected to mount.”

Reinsurers still face a number of challenges, Best continues, including pricing pressures, low investment yields and a “limited cushion of loss-reserve releases available to mask deteriorating earnings.”

Meanwhile, an Ernst & Young industry outlook released in December outlines the challenges it sees facing the insurance industry in 2012.

Aside from well-publicized macroeconomic challenges, the report notes several regulatory uncertainties. For example, the report wonders what the future role of the Federal Insurance Office will be, and how that will impact insurers.

It also says final standards for insurance-reporting revisions from the Financial Accounting Standards Board and International Accounting Standards Board are expected this year.

Changing consumer behaviors will also challenge insurers. E&Y says baby boomers will be driving with greater frequency than today’s seniors, as they are forced to work longer; younger insureds will require additional forms of communication; and the country’s changing ethnic mix will require new marketing strategies to reach consumers.

To face these challenges, E&Y says insurers must:

• Increase investments in core systems to bolster growth and profitability.
• Anticipate, understand and address the impact of prospective regulations.
• Comprehend and act upon changing insurance-buying behaviors.
• Execute flexible approaches to manage uncertain economic conditions.