Moody’s Investors Services likes what it sees in today’s property-casualty insurers. The service rates the industry as “modestly positive.” Moody’s sees commercial and auto rates going up by mid-to-high single digits the rest of this year and into next.
“Through 2019, we expect rate increases to exceed loss cost trends in auto lines, to roughly match loss cost trends in property lines and to lag slightly behind loss cost trends in commercial casualty lines,” the report said.
The report breaks down the industry by class.
Catastrophes and the high cost of construction materials will contribute to driving overall rates upward. Rates have increased by 4% so far in 2018. That’s an improvement over the declines of 2015 and 2016 and the flat pricing of 2017.
The investor’s service expects insurers to keep pushing rates up with more controls on loss costs. The good news is that Moody’s sees the P&C market as having “ample capital to absorb the latest events and limit the overall rate increases.”
This is one of the worst performing insurance lines. That’s Moody’s conclusion and is in spite of significant rate hikes. Rates have gone 9.5% this year. Prices rose by 7% in 2017. Moody’s thinks this year’s rates and last year’s will eventually drive the combined ratio down to the 105 to 106 range next year.
Loss costs — insurers say — should rise by 4% to 5% this year and next because of miles driven, more attorney involvement and the higher costs associated with that and a rise in large claims (over $10 million). Plus, the tight labor market has transportation companies hiring more inexperienced drivers.
“We believe the rising loss costs have led to an overall reserve deficiency for the commercial auto line,” Moody’s says.
From 2015 to 2017 rates declined gradually and this year rates have dropped by 2% overall. The lower rates will see accident year combined ratios to jump from 98% last year to 101 this year.
Adding to the cost is a tight labor market that is driving up wages and payroll-based premium increases will be much higher than indemnity cost increases. Moody’s says insurers are predicting medical cost rises to be in the mid-to-single digits. But the ratings service does predict that the loss cost trend will remain low, however, it also predicts that work comp insurers will be hesitant to grow their books of business because of the long duration of loss and LAE reserves, low investment yields and uncertain medical costs.
Commercial General Liability
Moody’s report said rates for commercial general liability rose about 2.5% in 2018. That compares to 1.5% in 2017 and 1% in 2016. It predicts a combined ratio decline from 101 in 2017 to 103 next year. Rising costs will outpace the increase in rates.
The troubles with the line start with slip and fall liability costs and stretch to increased lawyer involvement in claims and adverse auto liability trends in commercial umbrella policies.
Insurers are looking at rate increases of 1.5% this year after small drops in 2016 and 2017. Surprisingly, and in spite of rate hike, the combined ratios — Moody’s predicts — will rise fro 102 last year to 104 next year.
That’s because of the rising cost of directors & officers and errors & omissions claims.
Commercial Multiple Peril
Look for rate increases of about 3% this year. That’s up from 2% last year and 1% the year before. The line is split 63% to 37% between property and liability coverages.
Catastrophe losses caused the combined ratio to rise to 107 last year after four years sitting in the mid-to-high 90s. Increased attorney involvement in claims and rising construction labor costs will be challenging.
Personal lines is also an interest in the report.
Personal Auto: Personal auto insurers have increased rates by 6.5% this year. Last year rates rose 7.5%. Rate increases are predicted to drop as loss frequency and combined ratios fall and will push 100 this year and next.
More miles driven, more distracted drivers and higher repair costs for technically equipped vehicles with sensors and cameras will cause underwriting results to deteriorate. However, on the positive, loss frequency could drop because of collision avoidance technologies in those same vehicles.
Moody’s report also sees larger insurers taking more marketshare from smaller insurers. They will do it via low-cost direct writers.
Homeowners: The line saw increases of 4.5% this year and rates are expected to rise in 2019 and going forward. Look for rising rates in the low-to-mid single digits and the increases will be because of the rising cost of construction labor and materials. Catastrophes — like the wildfires in the West — will keep the pressure on rates to rise. However, insurers have lots of capital so the rate increases will not be very high.
Source links: Insurance Journal, Carrier Management