NU Online News Service, Jan. 12, 11:58 a.m. EST
Moody's Investors Service said it is maintaining its negative sector outlook for U.S. commercial line insurance due to limited demand for products, weak pricing and low investment returns.
The outlook tracks with A.M. Best's outlook for the commercial sector. Earlier this week, A.M. Best said it sees the potential for downward rating pressure in the commercial segment due to the continued wearing down of loss reserves in the industry.
Moody's also noted that deterioration in pricing is leading to reduced reserve margins on business written in prior years. The rating agency said it expects most standard commercial insurers to show breakeven, or even slightly deficient, reserve positions at year-end 2010, which will translate to reduced earnings strength going forward.
But Moody's said it does not expect its negative outlook to lead broadly to negative rating actions near term due to the industry's strong credit profile and healthy 2010 third-quarter earnings.
"Such an incongruity between underlying fundamentals and reported results speaks to commercial insurance being a cyclical industry," the rating agency said.
Alan Murray, Moody's vice president and senior credit officer, said, "Commercial insurance is essentially a proxy for the underlying business economy, and reductions in employment levels, commerce, transport, construction and manufacturing not only translate into reduced premium volume given fewer insureds in the market but also exert downward pressure on rates, as carriers reduce prices to maintain share in a shrinking market."
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