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Commercial insurance prices are accelerating as U.S. property/casualty insurers hit by pandemic and catastrophe headwinds seek to offset rising loss costs and low interest rates, Moody’s Investors Service Inc. said in a report Thursday.
Rates are increasing by almost 10% on average, with some 83% of the commercial lines market — which reported $169 billion of direct premiums written for the first half of 2020 — experiencing increases, Moody’s said in the report.
“We expect price increases to continue into 2021 based on continuing adverse loss cost trends and low market interest rates,” Moody’s said.
Commercial insurance pricing was rising even before the onset of the coronavirus pandemic except in workers compensation, the report said.
“Commercial insurers have reported significant pricing gains through the first nine months of 2020, most notably in general liability, commercial property, professional liability and commercial auto,” the report said.
Pricing is also up substantially in excess and surplus lines, where multiple years of property catastrophe losses and rising severity in casualty lines have prompted insurers to retrench, Moody’s said.
Price increases in casualty lines reflect rising loss costs, lower investment returns, greater underwriting discipline and rising reinsurance costs, the report said.
Commercial property insurers are also raising rates in response to the high frequency and severity of catastrophic events and rising reinsurance costs, Moody’s said.
The outlook for the U.S. property/casualty commercial insurance sector for 2021 is stable, reflecting the acceleration in price increases and solid capital positions, Moody's said.
“For commercial lines insurers, the coronavirus-related economic downturn is constraining premium growth, raising claim costs in certain business lines, and adding volatility to investment performance and capital levels,” Moody's Vice President Jasper Cooper said in a statement.
“While the economic recovery is underway, our macro forecast underscores the downside risks. In addition, low interest rates are likely to persist for an extended period of time, reducing insurers' investment income and weighing on profitability.”