Moody’s: Commercial Lines Soft Market Not Going Anywhere

NU Online News Service, June 13, 1:24 p.m. EDT

Recent news that U.S. commercial property and casualty rates fell 4 percent in May is a “significant credit negative” for the sector, according to Moody’s, and the issue will likely continue to plague casualty lines through the medium term.

In its Weekly Credit Outlook, Moody’s points to MarketScout’s recent announcement of a 4 percent drop in rates, and adds that this soft pricing, along with diminished reserve margins, the sluggish economic recovery and lower investment yields, creates an unfavorable environment for insurers that is squeezing profit margins. 

For property lines, Moody’s says insurers may reduce exposures or increase rates in response to catastrophes, but the rating agency notes that casualty lines should expect more of the same over the near-to-medium term barring a “significant industry-wide loss or depletion of capital.”

Moody’s says, “The combination of continued price declines, stable-to-rising losses, and a limited ability to support earnings through reserve releases suggests that the commercial lines market will remain highly challenging for the remainder of 2011.”

The rating agency says that rates appeared to be flattening when MarketScout reported in March that the pace of declines slowed to 4 percent from 5 percent, “but this latest report from MarketScout suggests that while rate declines have moderated, significant positive momentum has not materialized.”