Uptick in combined ratios as U.S. commercial insurance pricing weakens: Moody’s

Most lines of property and casualty insurance in the United States will likely experience weaker pricing in 2015 than in 2014, Moody’s Investors Service notes in a new report released Tuesday.

In its annual p&c insurance survey, US P&C Insurance Survey: Inflection Point for Commercial Liability; Property Turns Negative, the credit ratings company notes pricing has already turned negative in commercial property, while current increases in commercial liability lines are expected to continue to moderate over the course of the year.

“We expect that 2015 will be an inflection point for commercial liability lines, with accident year combined ratios increasing slightly for the first time since 2011, and potentially even larger pricing declines in commercial property, which is already experiencing intense competitive pressure,” Jasper Cooper, assistant vice president and analyst for Moody’s, notes in the report.

Specifically, Moody’s reports that rated insurers are expecting average rate increases of about 3% for commercial liability policies written this year, down from 3.5% in 2014 and 7.0% in 2013.

As the pricing environment grew more competitive last year, “pricing increases for 2014 came in well below insurers’ initial expectations of about 6%,” the statement notes. That could happen again in 2015.

“Insurers indicated continued appetite for new business, particularly for workers’ compensation and commercial general liability, and we believe that pricing increases could fall below insurers’ expectations in 2015,” Cooper explains.

Other findings in the survey include the following:

• in commercial liability lines, commercial auto is still a weak spot with combined ratios of more than 100% and little appetite among rated insurers to increase market share;

• in commercial property, rated insurers expect rate decreases of 0.5% for the year (compared to rate increases of about 1% for 2014 and 4.5% for 2013);

• in personal lines, auto liability rate increases are expected to continue at a moderate rate, outpacing loss ratio trends; and

• 2014 marked the fifth straight year of healthy pricing increases for homeowners, although insurers expect pricing increases to be more moderate this year in line with significantly improved underlying combined ratios driven by re-underwriting initiatives.

With respect to commercial property, Moody’s points out that several large carriers reported rate declines in property business of 5% to 7%. “Pricing declines in property could be even larger by the end of the year in the absence of major catastrophes, given increasing competition for middle market and large accounts and lower reinsurance rates with expanded terms and conditions,” Cooper advises.