Moody's: U.S personal lines sector outlook stable
Moody's outlook is stable due to support by ample capital, advances in technology and effective risk management.
Moody’s outlook on the United States personal lines sector is stable due to support by ample capital, advances in technology and effective risk management as companies evaluate their exposure to catastrophes.
The industry outlook indicates Moody’s indicates its forward-looking assessment of fundamental credit conditions that will affect the creditworthiness of U.S. personal lines insurers over the next 12-18 months.
Notably, Moody’s notes that the following six themes will shape global credit in 2020:
- Recession risks
- Political risks
- Disruptive technologies
- Lower-for-longer interest rates
- Trade tensions
- Environmental, social and governance impact
With this in mind, read on for a summary of five components that determined Moody’s outlook for U.S. personal lines in 2020.
- Personal auto profitability fuels competition for growth: Leading personal auto insurers have reported good profitability through the first nine months of 2019 as a result of cumulative earned rate increases and better than expected loss frequency trends. Among the personal lines and diversified insurers, auto premiums written grew by about 3% through the first six months of 2019 compared to 8% in the prior-year period. Profitability has been helped by lower frequency trends, which have stabilized in part as accident avoidance technologies have become more effective and widespread. High severity trends, however, persist due to higher automobile repair costs and increasing litigiousness for automobile bodily injury claims.
- Homeowners insurers raise rates and recalibrate catastrophe risk: Homeowners insurers’ profitability has been weighed down by catastrophe losses over the past several years from both non-catastrophe weather-related losses as well as severe catastrophes. Through the first six months of 2019, personal lines carriers reported premium growth of 5.4% in homeowners through a combination of rate increases and policies-in-force growth. Moody’s expects low-to-mid single-digit rate increases in the year ahead to help offset projected non-catastrophe loss ratio trend of positive 2-3%.
- Technology helps streamline claims process, reduce fraud: Claims handling has historically been paper-based, but shifts in consumer expectations are a driving force in the expansion towards artificial technology (AI) technology to large volumes of unstructured data in claims management. Technology has also helped insurers reduce costs and increase accuracy in claims handling. Over the coming years, Moody’s expects that advancements in hardware and software will help insurers use AI and big data to anticipate customer demand and sell customized products to consumers.
- Telematics promotes better driving but raise privacy concerns: While telematics technology is not new, it has taken some time for the industry at large to adopt it. The data collected by telematics devices has caused concern among some consumers, however, and McKinsey & Company estimates these privacy concerns are limiting consumer acceptance of telematics at 20% of auto insurance policyholders.
- Key risks include catastrophe losses combined with recession, low investment yields: Natural catastrophes remain a key threat to insurers’ balance sheets. High insured losses combined with a recession-driven drop in premiums and continued low investment yields could lead to a negative outlook. Moody’s macroeconomic forecast calls for the U.S. economy to generate gross domestic product growth of 2.3% in 2019 and 1.7% in 2020 after growing by 2.9% in 2018. Beyond 2020, our forecasts assume that economic growth will converge toward its underlying potential of just below 2%.
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