Capacity limits property rate hikes; comp rates still climbing: Moody’s
By: Mark Hoffman (Business Insurance) November 2013
Rate increases for commercial property/casualty insurance should continue into next year, although the rate of increases may slow, according to an analysis by Moody’s Investors Service Inc.
In “U.S. P&C Insurers Generated Strong Earnings in Q3 2013 on Lower Cats and Expanded Underwriting Margins,” Moody’s noted Monday that most commercial property/casualty insurers continued to report rate increases in the third quarter.
Many casualty lines, such as workers compensation, “still experienced healthy price increases as companies aim to improve profitability” due to three factors: low interest rates; accident year combined ratios for casualty commercial lines that still are not meeting targeted returns; and the expectation that reserve releases will slow, Moody’s said.
But the New York-based rating agency also said the sector’s prospects “for meaningfully enhanced earnings generation is limited, as plentiful capacity will continue to dampen the upwards trajectory of rates.”
Moody’s found that commercial property rate increases had moderated after three years of rate hikes, with some insurers noting increasing competition in the market for large accounts.
According to pricing surveys and conference calls, Moody’s said commercial lines insurers reported mid- to high-single-digit rate increases for most segments, with proportionately greater rate increases in casualty lines, especially workers compensation.
Casualty may have peaked
“Most companies expressed willingness to continue price discipline in commercial casualty lines where operating returns are still below expectations,” Moody’s said. However, “the pace of casualty rate increases may have peaked, given the market’s abundant capacity.”
Looking ahead, Moody’s said that the favorable pricing environment and gradually improving economy, coupled with relatively benign loss cost trends, will benefit accident-year loss ratios and underwriting margins for 2013 and 2014 excluding catastrophes.
While forecasting relatively stable retention ratios, “they may fall for some insurers that are taking underwriting actions to improve profitability,” Moody’s said. “While rate increases in some commercial lines, such as property, may slow in the coming year given lower reinsurance costs and alternative capital entering the reinsurance market, we expect that rate increases will continue to meet or exceed loss cost trends.”
