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Moody’s Investors Service’s outlook for the global property/casualty insurance sector remains stable for 2020 as economic growth, good capitalization and increased prices help buoy insurers.
Rising claim costs and low investment yields, however, will continue as headwinds for insurers, the ratings agency said Thursday in its annual global property/casualty insurance outlook.
North America holds a 40% share of the global property/casualty market and has the most robust outlook, with the 12- to 18-month property/casualty pricing trend forecast up by low to mid-single digits, with larger increases in catastrophe-exposed properties and commercial auto.
Europe, the Middle East and Africa hold a 31% market share, with the region forecast to rise by low single digits, while the Asia-Pacific region, with a 25% market share, is forecast to rise by low single digits over the next 12 to 18 months.
Latin America, which holds a 4% share of the global property/casualty market, is forecast to rise by low single digits, Moody’s said.
In the U.S., the largest price increases are in commercial auto, general liability and professional liability, Moody’s said.
Loss cost inflation, however, is challenging margins in commercial casualty lines.
“We expect slight deterioration in underwriting margins in 2020 along with weaker reserve levels, including reserve deficiencies in general liability, commercial auto and professional liability,” Moody’s said of the U.S property/casualty market.
In Europe, the single-digit price increases will keep pace with claims costs, while “competitive pressures will prevent the larger increases needed to counteract falling investment income,” Moody’s said.
China is the world’s fastest-growing property/casualty market as insurers expand into nonmotor lines such as health, agricultural and liability, which will “test the sector’s underwriting discipline,” Moody’s said.
By country, the outlook for most nations was stable except for France, where low interest rates heighten reserve requirements for long-tail business and will pressure investment income; and the Netherlands, where “recent insurance sector consolidation could intensify price competition, and high P&C combined ratios leave (the) sector more reliant on investment income, which is under pressure.”
In addition to low interest rates and rising claims costs, climate change and technology will prove to be “disruptive” to the insurance business, Moody’s said, but could also bring opportunity.
“P&C insurers are exposed to the economic consequences of climate change, mainly through its unpredictable effects on the frequency and severity of weather-related catastrophes such as hurricanes, floods, convective storms, droughts and wildfires,” Moody’s Vice President Bruce Ballentine said in a statement released with the report. “Such shifting perils also represent an opportunity for P&C insurers to provide additional coverages and other risk mitigation products for clients.”
Net written premiums rose 3.8% to $158.6 billion in 2018 as the global reinsurance sector saw its combined ratio improve to 102.3% from 110.1%, according to a report Thursday from A.M. Best Co. Inc.