Moody’s downgrade outlook for U.S. commercial property and casualty sector

Moody’s Investors Service has revised its outlook for the U.S. commercial lines insurance sector to negative from stable.
The downgrade is based on a “confluence of factors,” including intensified stress on insurers’ investment portfolios and financial inflexibility arising from capital market turmoil, together with continued cyclical weakening of underwriting, a Moody’s release says.
In addition to above-average catastrophe losses in 2008 and the increasing severity of investment losses through to the end of 2009 Q1, Moody’s expects these pressures will likely continue to expose commercial property and casualty insurers to a degree of credit erosion over the medium term, the release continues.
The outlook reflects Moody’s expectations for fundamental credit conditions affecting this industry sector over the coming 12 to 18 months.
“Moody’s noted that further deterioration in investment portfolios, outsized catastrophe losses, and the potential for significant litigation costs relating to corporate bankruptcies and the subprime mortgage crisis all could place additional strain on the sector over the intermediate term, particularly if capital market access remains frozen for a prolonged period of time.”
Partly counterbalancing these strains are a stabilizing-to-modestly-improving underwriting environment, sound capital levels and an expectation of reduced inflation trends affecting claims severity at least in the near term, said Alan Murray, Moody’s vice president.