The outlook for the US commercial P&C insurance industry remains stable, reflecting Moody's view that the benefit of sustained pricing improvement and the likelihood of further reserve releases across most lines in the next 12-18 months continue to counterbalance declining investment yields and macroeconomic weakness, Moody's Investors Service says in its new report, "US Commercial P&C Insurance -- Outlook Remains Stable." The rating agency has also recently published supporting commercial lines commentary, cited at the end of this announcement.
"Pricing trends for US commercial insurers remain broadly positive and reserves remain slightly redundant across most lines," says Senior Vice President and co-author of the report, Alan Murray. "Nevertheless, accident year combined ratios remain in excess of 100% which, combined with declining investment yields, suggest the need for continued pricing improvement."
Based on 2012 survey data from rated issuers, Moody's expects P&C insurance rates to continue to rise in 2012 for major commercial lines, including workers' compensation, commercial general liability, professional liability, commercial auto and commercial multiple peril. Together these lines represented 27% of net premiums written for the industry last year. Moody's expects the combined ratio to decline from 110% in accident year 2011 to about 107.5% this accident year, and to drop to 104% in 2013 if current trends hold, says Associate Analyst and co-author Jasper Cooper.
Commercial insurers' reserves remain slightly redundant across most standard property, liability and specialty lines. However, recent accident years now appear barely adequate or modestly deficient, particularly in workers' compensation, indicating both the likelihood of reduced earnings windfalls from reserve releases beyond the coming 1-2 years, as well as the importance of sustained pricing improvement.
Although underwriting results are poised to improve, commercial insurers continue to face headwinds and pricing will need to continue improving if they are to reduce accident year loss ratios to acceptable return levels. Additionally, sustained low interest rates and economic weakness continue to pressure investment returns and demand for commercial insurance.