North American commercial lines stable, depsite downturn: Moody’s

North Americas property and casualty commercial lines sector remains stable, although a market downturn is already underway, according to an annual report by Moodys Investor Services.
Subject to the level of catastrophe activity, the number of rating actions over the next 12 to 18 months is likely to be moderate and should be driven more by specific characteristics of individual firms rather than by industry-wide conditions, Moodys senior vice president Jeffrey Berg is quoted as saying in a release.
The industrys stable outlook, Berg said, reflects the strength of commercial insurers earnings over the past several years despite heavy catastrophe losses and improvements in risk-adjusted capitalization.
Despite recent strong financial performance, however, the cyclical nature of the property and casualty commercial lines industry, coupled with inherent earnings volatility, will limit upward rating pressure for most carriers in both the near and medium terms, Berg qualified.
According to Moodys, the market downturn is already under way, and Berg said he expects underwriting margins to narrow as accident-year loss ratios climb upward.
Still, Berg added, business is expected to remain profitable for 2007, barring a large catastrophe. But watch out for results during the following years: The 2008-09 underwriting years should be considered to be an inflection point as underwriting discipline becomes increasingly crucial, Berg said.