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Moody's: US P&C rising rates boost margins, likely to continue over medium term

Global Credit Research - 26 Aug 2013

New York, August 26, 2013 -- Moody's expects US property and casualty (P&C) insurance rates to continue to rise during the remainder of 2013 for the major commercial lines, following significant rate increases for 2012, says Moody's Investors Service in its special comment "US P&C Insurance Pricing Generates Margin Expansion, Rate Needed in Casualty."

The report is based on 2013 survey data from Moody's-rated issuers. This increase would mark the third straight year of rising rates for commercial carriers, says Moody's. These lines include workers' compensation, commercial general liability, professional liability, commercial auto, and commercial multiple peril, which represented 28% of 2012 industry net premiums written and 60% of carried loss and loss adjustment expense reserves as of year-end 2012 for the industry.

"If the rate increases continue at the current pace and loss ratio trends remain moderate, then commercial insurers' ex-catastrophe underwriting margins will improve for the remainder of 2013 and 2014," said analyst Jasper Cooper. "We expect the combined ratios to decline from about 106% in accident year (AY) 2012 to about 101.5% for AY 2013 and further drop to about 97% for AY 2014 if current trends hold."

Moody's notes that commercial insurers expect average rate increases of about 7.5% for policies written in 2013, which is up from an increase of 6.5% for 2012 and 2.5% for 2011 for the five major liability lines. The survey by Moody's also found that companies indicated a reduced appetite for taking on risk, which could help sustain future rate improvement as they anticipate slightly higher severity trends and exposure trends for 2013 and 2014.

Despite reduced risk appetite, some insurers have reported a modest slowing of rate increases in certain lines of business, most notably commercial property which is not surprising given three years of significant rate increases. Moody's notes that predicting an inflection point in the market is elusive; however, given still low interest rates and low -- but improving - accident year profitability , rate increases are likely to be sustained over the medium term but not accelerate from current levels given ample capacity.

Workers' compensation (WC), one of the most problematic lines in recent years, has seen steady declines in accident year combined ratios to 107.5% in 2012 from about 118% in 2010, and the ratio is expected to decline even further to about 101% in 2013 as a result of rate increases continuing to outpacing loss ratio trends. However, operating returns on surplus are still low relative to target returns, and further rate increases are needed given the line's sensitivity to still low new money rates and lower reserve releases on older accident years.

Moody's research subscribers can access this report at https://www.moodys.com/research/US-PC-Insurance-Pricing-Generates-Margin-Expansion-Rate-Needed-in--PBC_157608

***

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Jasper Cooper
Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: US P&C rising rates boost margins, likely to continue over medium term
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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