Moody's gives stable outlook for US P&C commercial insurance in 2021 despite headwinds

Analysts at Moody's predict a stable market outlook for US property & casualty (P&C) commercial insurance in 2021, highlighting an acceleration in price increases and solid capital positions.

It noted that these factors could mitigate headwinds from rising loss cost trends, catastrophes and COVID-19 related losses, as well as low interest rates.

US commercial property insurers experienced significant catastrophe losses through the third quarter of 2020, primarily from hurricanes, western US wildfires, and hail and other convective storms.

These insurers are raising rates in response to the high frequency and severity of catastrophic events and rising reinsurance costs.

Commercial insurance pricing was rising even before the onset of the pandemic except in workers' compensation, according to the report. Through the first nine months of 2020, commercial insurers have reported significant pricing gains, particularly in general liability, commercial property, professional liability, and commercial auto.

As rate adequacy improves, some insurers are pursuing growth while others continue to re-underwrite their portfolios, Moody's said. Premium growth rates will depend on the pace and extent of the economic recovery.

"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," said Moody's vice president Jasper Cooper.

"While the economic recovery is underway, our macro forecast underscores the downside risks," added Cooper. "In addition, low interest rates are likely to persist for an extended period of time, reducing insurers' investment income and weighing on profitability."