Property/casualty insurers should benefit from price momentum and a gradually improving economy in 2013, according to an analysis released Friday by Moody’s Investors Service Inc. The report — “U.S. P&C Insurers Earnings Improve in 2012 Despite High Cats; Pricing Momentum Continues” — noted that U.S. property/casualty insurers rated by Moody’s enjoyed improved earnings in 2012, with net income for the group increasing collectively about 48% over that of 2011.
Moody’s said that lower — though still high — catastrophe losses and higher earned premiums provided the primary drivers of the improved performance. It also said investment income “increased modestly” last year, while reserve releases were down for most companies from the prior year, continuing their moderating trend.
These were among the key factors that drove last year’s results and “will shape the industry’s credit profile over the next 12 to 18 months,” said Moody’s.
“The favorable pricing momentum and gradually improving economy, coupled with relatively benign loss cost trends, will benefit accident-year loss ratios and underwriting margins for 2013” excluding catastrophes, said the report.
Moody’s added that retention ratios should remain relatively stable as the rate increases are broad-based, ranging across the property/casualty industry. But it added that “offsetting these positive factors are headwinds from tapering loss reserve releases and still-low investment yields, which are placing pressure on operating margins but should support the improving pricing environment.”