Personal-lines insurers' capital strength and core-underwriting earnings power should offset challenges posed by natural catastrophes; high-frequency, low-severity weather events; and the "very competitive nature of the market," according to Moody's Investors Service.
As such, in its August 2011 Industry Outlook, Moody's says it is maintaining its stable outlook on the U.S. personal-lines industry.
While the general macroeconomic trends, such as high unemployment and a slow housing-market recovery, are impacting new-business growth, Moody's notes that personal lines are, relative to commercial lines, insulated from these trends. "Coverage for personal auto and homeowners' insurance is typically mandatory, and customers generally continue to pay policy premiums during periods of financial distress."
For auto insurers, Moody's says it expects usage-based insurance to gain momentum and notes that carriers that are at the forefront of offering such products will gain a competitive advantage.
Auto rates continue to rise moderately, combined ratios have been relatively profitable since 2003, and auto-claims frequency in 2010 was "generally benign, given little change in total miles driven from the previous years," Moody's says.
For homeowners insurers, Moody's notes that, according to Munich Re, 2011 first-half weather events have caused losses of nearly $18 billion, more than twice the January-to-June average over the past 10 years. "These figures will negatively impact personal insurers' results for 2011, and in some cases materially," Moody's says. Insurers are also exposed to more-frequent but less-severe weather events like tornadoes and hail storms.
Moody's says above-average 2011 weather losses have reduced earnings by 80 percent for personal-lines insurers collectively, not including the impact of Hurricane Irene.
Like auto insurance, homeowners' rates have risen, driven by insurers' responses to the weather events, and combined ratios have been volatile.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.