As 2015 draws to a close, insurers are looking for indicationsof what the new year will bring.

At a panel discussion on the 2016 outlook for insurancecompanies held on Nov. 18, Moody’s analysts predicted that theFederal Reserve would gradually raise rates, beginning in December.Indeed, the Fed did just that, raising interest rates by 0.25% onDec. 16, exactly seven years after the Federal Market OpenCommittee took the rate to 0% on Dec. 16, 2008.

What else do the analysts think is in store for property andcasualty (P&C) insurers in 2016?

The outlook is stable for all insurers, except for globalreinsurance, said the panel, led by Robert L. Riegel, managingdirector, Americas Insurance, for Moody’s. He doesn’t see a lot ofrating upgrades or downgrades in the next year.

Riegel also noted that the outlook is stable for personal andcommercial lines, with some margin pressure. “Rate increases aremoderating,” he said, especially in commercial property butcombined ratios are relatively stable.

M&A can be positive

Moody’s has a negative outlook for reinsurers because of reduceddemand from primary companies and abundant capacity provided byalternative sources of capital. Stanislas Rouyer, associatemanaging director, Specialty Insurance for Moody’s, noted thatreinsurance companies still have merger and acquisition (M&A)potential, although smaller companies may have a more difficulttime getting traction. He sees definite consolidation in theindustry coming.

When asked about M&A activity generally in the insuranceindustry, especially in light of recent large company deals, Riegelcommented that Moody’s sees the Willis/Towers Watson merger ascredit positive, and good for both companies. Willis was creditnegative before, and is stable now, he added.

Related: Towers Watson approves $8.9 billion Willis deal;shares jump

Riegel described theACE/Chubb deal as “transformational” with some positive elements.What remains to be seen is the impact of the cultural differencesin the two organizations. Chubb is more granular, he said, whileACE generally has larger limits.

Regarding the acquisition of U.S. insurers by Asian companies,Riegel pointed out that the buyers are generally privately heldconglomerate groups that are looking to support growth. They’re notdominant players in the Asian insurance markets.

Buying into the U.S. insurance market is also a way to developneeded skills sets and have those skills flow back to Asia, Riegelsaid. This allows the foreign companies to improve the way theyoperate in their own markets.

Related: Fosun to sell $1B shares in Hong Kong partly to fundinsurance acquisitions

Addressing the topic of interest rates, Joel Levine, associatemanaging director, Life Insurance Group, Moody’s, commented that“low for long” is generally negative for insurance companies butthey’ve managed to operate well in the low interest environment. Inhis view, a possible stock market correction is likely to have amore serious impact. “Companies are building in assumptions of lowfor longer,” he said, “and they’re not taking huge charges or hugelosses.”

The low-for-long interest rate scenario has less of an impact onProperty insurance, Levine said. Casualty is more dependent, andthere will be some profitability squeeze. The biggest benefit hesees is more underwriting discipline in the property and casualty(P&C) industry.

Related: Ace said planning $5.3 billion 4-part bond sale forChubb deal

Cyber risk provides opportunity

Alan Murray, senior vice president, Property Casualty, Moody’s,noted that Cyber coverage presents growth opportunities for P&Ccarriers who are already in the market. “Specialty insuranceusually grows out of the exclusions in general liability policies,”he added.

Given the lack of standardization among carriers, Murray seesthe potential for customization based on a general template,especially for large organizations. For small to mid-sizebusinesses, Murray suggested that agents and brokers consider theCyber endorsements for use with the ISO Businessowners Program.

Murray also pointed out that insurers have their own operationalrisk. They gather and store sensitive data on commercial,institutional and individual clients. He expects that insurers willaddress cyber risks holistically as part of their own internalenterprise risk management. But a severe, prolonged disruption to acompany’s business from a cyber attack may negatively impact aninsurer’s rating or outlook, he cautioned.

Overall, 2016 looks to be a positive one for the insuranceindustry.

Related: The P&C Industry in 2016: Where Do We Go fromHere?

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