How U.S. P/C Commercial Insurers Will Fare Through 2019: Moody’s

September 10, 2018

The outlook for the U.S. property/casualty commercial insurance sector for the next 12 to 18 months remains stable given healthy core earnings and sound balance sheets in the view of analysts at Moody’s Investors Service.

“Commercial insurers held up well despite the large catastrophes of 2017 and will generate good core earnings in 2018-19,” says Bruce Ballentine, vice president and senior credit officer at Moody’s. “Insurers will benefit from higher rates in property lines and stable-to-rising investment yields, tempered by slightly worse combined ratios in casualty lines.”

Th analysts describe a positive picture. Commercial lines pricing is more favorable than in recent years. Property rates are higher following the 2017 catastrophes, although the rating agency expects renewed downward pressure by 2019 absent further catastrophes. Casualty rates are trending slightly upward in aggregate, with high-single-digit increases in commercial auto and modest declines in workers’ compensation.

As a backdrop for the sector outlook, Moody’s forecasts that U.S. real GDP growth will peak at 2.9 percent in 2018, declining to 2.3 percent in 2019 and hovering around 2 percent for the next couple of years. Nevertheless,ays Moody’s, the expanding U.S. and global economies will drive growth in insured exposures and related commercial lines premiums.

Moody’s said it expects insurers to curb their investment risk appetite as portfolio yields improve with rising market interest rates. Insurers had increased their allocations to high-risk investments over the past several years as market interest rates fell.

Insurers’ loss reserves are deficient in commercial auto, moderately redundant in workers’ compensation and other lines, and adequate overall, with little cushion relative to Moody’s loss estimates.

Moody’s also expects that insurers will continue to invest in data and analytics, robotic automation, mobile solutions and other technologies and that they will harness technology to better engage with customers, develop new products, operate more efficiently and manage risks.

As a backdrop for the sector outlook, Moody’s forecasts that U.S. real GDP growth will peak at 2.9 percent in 2018, declining to 2.3 percent in 2019 and hovering around 2 percent for the next couple of years. Nevertheless,ays Moody’s, the expanding U.S. and global economies will drive growth in insured exposures and related commercial lines premiums.

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