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Property/casualty pricing momentum slows: Moody's report

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Property/casualty pricing momentum slows: Moody's report

Property/casualty insurance pricing is losing momentum, according to a report issued Wednesday by Moody's Investors Service Inc.

The report — “Stable Outlook as Rates Lose Steam and Margin Expansion Slows” — said improving profitability in commercial lines means that insurers are retaining “seasoned accounts” and writing more new business.

“Insurers' larger risk appetite in casualty is slowing the pace of rate firming, which will lead to some margin compression by the second half of 2015,” said Moody's in the report. “In contrast, property rates for large and middle-market accounts will slide given increased competition and lower reinsurance prices, barring major catastrophes.”

It cautioned, however, that insurers' margin for error to cushion reserve volatility is continuing to narrow because of slimmer redundancies in older accident years and “modest” estimated deficiencies in accident years 2009-2012.

“Longer term, uncertainty in forecasts of medical claims inflation and attendant litigation expenses in long-tail liability lines will drive reserving challenges for the industry.”

The report predicted that insurers will experience moderate growth in the second half of this year and into 2015 because of gradual economic improvement.

Moody's said several factors could lead it to change its outlook to negative for the property/casualty insurance sector from the current stable outlook. These include casualty rate declines in the mid-single digits “(if we expect the trend to continue), without commensurate declines in renewal retentions”; primary insurers significantly increasing gross catastrophe exposures relative to capital as a result of declining property catastrophe reinsurance pricing; a 2%-3% adverse development of industry loss reserves; or a 10% decline in industry capital from a combination of events.

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