Global commercial lines price increases accelerating, says Moody’s

Price increases are accelerating in global commercial lines to combat catastrophe and coronavirus losses, rising litigation costs and lower investment income, according to Moody’s Investors Service.

The ratings agency has assigned a stable outlook to the global property and casualty (P&C) insurance sector, based on good capitalisation and positive pricing trends in commercial lines. P&C insurers will absorb coronavirus-related commercial claims from earnings, said Moody’s, noting that significant business interruption claims have been contained via reinsurance protection, as well as being counterbalanced by reduced claims frequency in personal lines.

However, sector challenges include low interest rates, rising litigation costs and natural catastrophe frequency, although investment portfolios are also relatively conservative and well positioned to manage volatility during the next 12 to 18 months, it said.

Moody’s noted that a fragile economic recovery is underway, but said: “The impact of real GDP contraction in 2020 for G20 economies overall, and an uneven recovery, will constrain premium volume into 2021, although we expect return to pre-pandemic levels of real GDP by 2022.”

Reinsurance costs are increasing due to more frequent and severe storms and wildfires. “Frequency of weather-related events has trended higher as temperatures increase and sea levels rise, leading to increasing uncertainty and risk for insurers,” said Moody’s.

It added that (re)insurers have reported more than $22bn of coronavirus-related insurance losses by the end of the third quarter 2020, mainly from event cancellation, property business interruption and travel, which has significantly affected combined ratios. “Future losses hinge on the economic recovery and the outcome of litigation over business interruption claims that insurers have rejected, citing exclusion clauses. We believe that insurers, helped by reinsurance protection, will absorb the losses from earnings, although the share of losses between the primary and reinsurance sector will be subject to meaningful debate,” said Moody’s.

Looking at individual territories and regions, insurers in the US are seeking double-digit rate increases in general liability, professional liability, commercial auto and commercial property to address rising litigation costs and frequent catastrophes, according to Moody’s.

“Workers compensation rates, which have declined for years, will level off or increase as the economy recovers and as some states make it easier for workers to get coverage for coronavirus-related claims. We estimate that reserves will be moderately deficient in most commercial casualty lines but still redundant in workers compensation at year-end 2020,” it said.

In Europe, it expects continued price increases from commercial insurers in 2021, combined with stricter terms and conditions, following double-digit price increases in 2020. In Japan, Moody’s said that despite the severe catastrophes of recent years, leading Japanese P&C groups will likely remain profitable and well capitalised into 2021, based on their sound reinsurance programmes and geographic diversification.

P&C premiums in China will grow at a mid- to high-single-digit percentage, according to Moody’s, with weak motor premium growth but strong expansion in non-motor businesses, which will drive greater business diversification.