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After enduring the large catastrophe losses, lower investment income and declining reserve margins that defined 2011, the property/casualty insurance industry is poised for growth in 2012, according to a report issued Thursday by New York-based Moody's Investors Service Inc.
The report, “U.S. P&C Insurers' Earnings Down in 2011, but Pricing Gains Traction,” says that in spite of the challenges, the industry retains strong credit fundamentals.
Underlying this positive sentiment is evidence of rising prices across most lines of business.
“Rates do seem to be broadly strong,” said Paul Bauer, vp and senior credit officer for Moody's, and author of the report. “The only remaining area of weakness is professional liability and D&O. The bad cat year, the lower investment income and declining reserve releases will put a lot of pressure to make sure prices are adequate.”
In addition to the rising prices, Mr. Bauer said insurers' investments were improving. “Even though there has been a lot attention on low bond yields and the difficulty of boosting earnings through investment income, the actual numbers are not that bad,” he said. “Total investment income was only down about 3% in 2011.”
Mr. Bauer also credited the industry's cautious business model as helping to bolster its credit profile.
“The industry has some very healthy balance sheets, partially because companies have been in a retrenchment mode the last couple of years,” he said. “They haven't been growing aggressively and have allowed their balance sheets to build. Any company that has needed financing has been able to go out and get it at good rates.”