Originally posted August 26, 2013 by Mark A. Hofmann on http://www.businessinsurance.com
U.S. commercial property/casualty rates should continue increasing for the rest of the year, Moody’s Investors Service said Monday.
In “U.S. P&C Insurance Pricing Generates Margin Expansion, Rate Needed in Casualty,” Moody’s noted that the rate increases would be the third straight year of higher rates for commercial insurers.
“If the rate increases continue at the current pace and loss ratio trends remain moderate, then commercial insurers’ ex-catastrophe underwriting margins will improve for the remainder of 2013 and 2014,” with combined ratios declining from 105.5% in accident year 2012 to about 101% for accident year 2013 and 96.5% for accident year 2014 if current trends hold, the New York-based rating agency said.
Moody’s said commercial insurers expect average rate increases of about 7.5% for policies written in 2013 for five major liability lines: workers compensation, commercial general liability, professional liability, commercial automobile and commercial multiple peril. That compares with increases of 6.5% for 2012 and 2.5% for 2011.
Commercial property hikes slowing
“Companies also indicated a reduced appetite for taking on risk, which could help sustain future rate improvement as they anticipate slightly higher severity trends and exposure trends for 2013 and 2014,” Moody’s said in the analysis. “Despite reduced risk appetite, some insurers have reported a modest slowing of rate increases in certain lines of business, most notably commercial property, which is not surprising given three years of significant rate increases.”
Moody’s noted that workers comp, which it called “one of the most problematic lines in recent years,” has experienced steady declines in accident year combined ratios, which declined to 107.5% in 2012 from about 118% in 2010. The ratio is expected to decline to about 101% this year as a result of rate increases continuing to outpace loss ratio trends.
“However, operating returns on surplus are still low relative to target returns, and further rate increases are needed given the line’s sensitivity to still low new money rates and lower reserve releases on older accident years,” Moody’s said in the report.