The latest ratings briefing from A.M. Best finds the insurance industry on generally solid financial footing with some variation due to line of business.

For property/casualty personal lines, A.M Best maintained its stable outlook on the sector, saying it has weathered the difficulties of the past few years fairly well.

“Despite the challenges associated with frequent adverse weather, ongoing macroeconomic volatility and a competitive landscape, the personal lines segment has shown consistent resiliency over the past several years,” the briefing states.

The company was likewise optimistic on the life/annuity sector, saying trends pertaining to credit spreads, asset impairments, equity market performance, balance sheet and product de-risking, access to the capital markets and overall risk management augured well.

However, A.M. Best said that challenges remain for the segment, particularly concerning interest rates.

“Interest rate risk lies on both sides of life insurers’ balance sheets, given insurers’ high proportion of fixed income investments and substantial exposure to interest-sensitive products such as UL, fixed annuities and long-term care,” the briefing states. “The most problematic scenarios for the life industry would be a rapid rise in interest rates or persistence of the current low rates (and perhaps even a further decline).”

While the problems for life insurers may be around the bend, A.M. Best says P&C commercial lines insurers are currently feeling the pinch and lowered the sector’s outlook from stable to negative. A.M. Best asserts that the outlook change reflects its expectation of continued competitive market conditions, gradual price deterioration and lower favorable loss-reserve development.

“With sluggish economic growth expected and the replenishment of the segment’s surplus in 2009 and 2010, capacity remains high,” the report states. “This will continue to foster moderate deterioration in rates. Combined with loss-cost inflation, this pricing trend will continue to compress margins for the segment, pushing the combined ratio over 100.”

Nonetheless, A.M. Best notes, most commercial lines carriers have maintained strong capitalizations, which will cushion any deterioration in operating results.

“Many insurers have priced rationally through the development of improved pricing tools in recent years—including better segmentation of data and enhancements in predictive modeling—and have strengthened enterprise risk management practices,” the report states. “In addition, extremely low interest rates have forced an emphasis on underwriting profitability for the best performing companies.”