NU Online News Service, Dec. 20, 12:04 p.m. EST
Commercial-lines insurers should continue to achieve measured rate increases, but will not see a return to "hard-market" conditions, as capital remains strong, according to Moody's Investors Service.
Citing the results of recent pricing surveys from Towers Watson, MarketScout and the Council of Insurance Agents and Brokers, Moody's says in its Weekly Credit Outlook that commercial lines are seeing a pricing upswing for the first time since 2004.
"We believe the latest rate increase is significant as it signals the first firming trend in over seven years and backs up what a number of leading commercial-lines carriers have communicated in recent earnings calls," Moody's says.
The rating agency adds that the increased pricing trends reflect improved underwriting discipline in reaction to challenges such as lower reserve releases, weather-related losses, low investment yields and a sluggish economy.
However, Moody's says that while it expects "further price strengthening," the rate of increase will be gradual due to the industry's level of capital.
"Historically, significant price strengthening in the [property and casualty] sector has occurred because of a weakening of the industry's capital position," says Moody's. "Today, industry capital remains relatively strong. As such, we expect only measured rate improvements rather than the return of a 'hard market,' defined by high rates, low limits and restricted coverage."
Moody's also says that, even though most lines have seen the bottoming out of pricing declines, some are still experiencing rate decreases. Towers Watson's Commercial Lines Insurance Pricing Survey, for example, reveals that directors and officers liability rates show "significant declines for the second straight year," notes Moody's.
As for lines showing rate increases, Moody's says U.S. commercial property experienced rate increases for the second straight quarter, and workers' compensation rates increased for the third straight quarter. However, Moody's says workers' comp rates still remain inadequate to cover losses in 2012.
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