NU Online News Service, Dec. 13, 12:15 p.m. EST

Reserve releases that have cast a smokescreen in front of negative earnings in commercial lines will dwindle as the industry's reserve margin worsens, Moody's said.

According to Moody's Weekly Credit Outlook, "Conditions now are lining up for a meaningful deterioration for the commercial lines sector" since loss reserves are predicted to be at break-even levels. Therefore, more releases may lead to deficiencies, wrote Paul Bauer, Moody's vice president and senior credit officer.

Mr. Bauer said the commercial industry looks to be heading toward a pricing "double dip" instead of a recovery as an accelerated decline in commercial pricing was reported by MarketScout in November.

Mr. Bauer wrote there is "no end to the current soft market in sight."

Currently, loss costs are stable or trending upward and any increase in inflation will quickly accelerate loss costs. In addition, medical inflation has outpaced general inflation and low interest rates have continued to thwart investment income.

"At present no catalyst for a turnaround is apparent, particularly given that the industry just came though a hurricane season with little adverse impact, which may further reduce pricing in property markets," Mr. Bauer said.

At the same time, Towers-Watson's Commercial Lines Insurance Pricing Survey (CLIPS) reports that commercial insurance prices were relatively flat in the 2010 third quarter--the seventh straight quarter to show such a trend. Prices declined by less than 1 percent in the quarter compared to the same period in 2009.

After seeing price increases in 2009, commercial property, directors and officer liability and employment practices liability showed declined, according to Towers Watson.

"The lack of large-scale, market-moving catastrophes in the past couple of years--both natural and man-made--had led to excess capacity and price declines, and we expect to see similar results in the near term," said Bruce Fell, director of Towers Watson's Property & Casualty practice in the Americas, in a statement.

General liability and commercial property lines had the biggest drops in pricing at 6 percent and 5 percent, respectively.

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Commercial Market Pricing Appears Headed For &#039;Double-Dip&#039;

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