Moody’s Investors Service says the U.S. property and casualty personal-lines sector remains stable despite expected Hurricane Sandy losses.
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“We expect that losses from Hurricane Sandy will not jeopardize capital for major property and casualty insurers, although it will weaken 2012 earnings,” says Enrico Leo, Moody’s assistant vice president and author of the report, “U.S. Personal Lines Industry Outlook Remains Stable.”
The personal lines insurance sector credit profile will be driven by insurers’ focus on price adequacy in light of rising loss-cost trends, Moody’s says.
Automobile rate increases are expected to outpace higher liability loss-cost trends and help offset low re-investment rates, alleviating operating-margin pressure.
Sandy will likely spur additional rate increases and other underwriting actions, Moody’s projects.
Homeowners insurers had already been instituting rate increases, applying tighter underwriting standards and adjusting reinsurance programs in response to record high-frequency, low-severity weather-related events in 2011.
The industry is focused on policy retention, notes Moody's, as renewal business continues to be more profitable than new business.
Moody’s says that new products such as usage-based insurance also have the potential to allow insurers to differentiate themselves with a competitive advantage. But insurers will have to tread carefully through challenges such as customer acceptance, start-up costs and regulatory approval, Moody's notes.