There isn’t much good news for US commercial insurers in ratings agency AM Best’s latest outlook report.

The company suggests last year’s pricing deterioration, continued reserve development and relatively poor long-term business prospects would make rating upgrades a rare event in 2006. This is despite the likelihood of net underwriting profits in the near term.

It believes the sector is in the midst of a soft cycle and insurers can expect lower profit margins and higher reinsurance costs over the next two to three years. But it is the longer-term outlook that is most pessimistic.

“AM Best is concerned with this sector’s ability to sustain any new pricing momentum over the long term.

“Exposure to terrorism, its impact on capitalisation, and the uncertainty surrounding a long term solution to this issue are key concerns.”