Moody’s Ratings changed the sector outlook for the global property/casualty insurance industry to stable from negative last month, pointing to personal lines price hikes in the U.S. and UK as a reason for the upgrade.

As for commercial P/C insurance, prices for some lines “have now peaked,” but Moody’s believes prices will “remain high enough to support strong results in this subsector for at least another year.”

The report notes that the stable sector outlook for the global P/C industry as a whole reflects analysts’ view of credit fundamentals for the industry over the next 12 to 18 months.

The sector outlook is not a rating outlook. Rating outlooks “reflect issuers’ specific characteristics and actions” in addition to sector dynamics. In other words, the sector outlook is not an aggregation of upgrades, downgrades or ratings under review, or an average of rating outlooks, the report notes.

“Personal lines pricing has caught up with claims inflation after recent strong increases and should allow for profitable underwriting in most regions,” the Moody’s outlook report says, supporting the sector upgrade.

“Prices are now falling in some commercial lines after earlier significant increases, but we expect the overall pricing trajectory in this market to remain in line with underlying loss cost trends. Aggregate performance in commercial lines should therefore remain robust,” the report continued.

Separately, Howden Group published a report last week titled “Past the Pricing Peak,” with graphs showing the movement of global commercial insurance and global 1/1 property-catastrophe reinsurance prices for the years 2012-2025. Finding that pricing is past peak in these areas, Howden notes that in 2024, premiums adjusted to exclude the impact of pricing still grew, marking the first time that’s happened since 2019.

“Finding risk transfer solutions to close protection gaps and sustain market growth will become increasingly important as rate momentum wanes,” the Howden report says. “The dawn of a new cycle brings fresh innovation opportunities as insurers look to expand coverage in new areas.”

Both reports refer to one particular protection gap—a reinsurance gap felt by carriers, which used to have coverage for high-frequency weather events like hailstorms before reinsurers raised attachment points in January 2023. That’s not changing, both reports said.

Even as reinsurance prices fall “from a high base, structural changes imposed during the hard market are likely to be more enduring. Higher earnings volatility for insurers looks set to remain a feature in 2025,” Howden Group said.

The Moody’s report offered the view that reinsurance prices would keep rising into 2025, and that reinsurance terms and conditions would stay tight—causing some go-forward earnings volatility for P/C insurers. Still, Moody’s believes insurers’ capital remains “well protected from less frequent but more severe catastrophe events such as hurricanes.”

Addressing personal and commercial lines trends separately, Moody’s said that personal lines price hikes have been strongest in the U.S. and UK—geographies where underwriting performance was most severely affected by post-pandemic claims inflation. “Insurers are now writing profitable business, although it will take time for this to feed through to reported results,” the Moody’s Rating report said, adding that Moody’s expects underwriting results to improve more in 2025 “as poorly priced business runs off fully and claims inflation continues to recede.”

“However, price competition is re-emerging and could drive a deterioration in earnings beyond this period,” Moody’s said.

Characterizing overall commercial lines pricing as “solid,” Moody’s said that it also remains strong enough to buoy the overall outlook over the 12-18 month period covered by the report. “We believe commercial lines insurance prices will remain sufficiently high to counterbalance underlying loss trends and support a continued strong underwriting performance…despite a modest price decline in most major lines,” the report said, noting that the declines followed “a series of price increases from 2017-18, accompanied by a gradual tightening of underwriting terms and conditions, including higher policy attachment points and lower limits.”

Both Moody’s Ratings and Howden Group also discussed forecasted economic trends and their impacts on insurers.

Economic insights from the Moody’s report include these:

• The U.S. economy is experiencing its strongest run since the global financial crisis of 2008. While expected to decelerate, “underlying momentum remains strong and could continue to surprise with faster growth in a reasonably predictable policy environment.”
• “Post-election changes in U.S. policy could lead to a firming of trade protectionism.”
• Inflation is easing toward central bank targets in most Western economies.
• Insurer investment returns will remain big profit contributors despite falling interest rates.
• Even though lower inflation will favorably impact P/C insurers’ claims—slowing their growth—Moody’s expects claims costs to remain high. Moody’s points to the faster rise in vehicle parts’ and building materials’ costs than economic inflation in recent years, persistence of weather events and motor accident frequency, “increases in the reference indexes used to calculate bodily injury awards,” and litigation trends resulting in large damages awards.

Likewise, Howden Group noted that even though economic inflation eased last year, it remains elevated, driving up replacement costs and claims higher at a time of significant loss activity.

“Concern that adverse litigation trends are driving loss costs higher in U.S. long-tail lines have also led to tighter coverage off the back of reserve deterioration, even as investment income continues to provide a meaningful offset,” the Howden report says.

Moody’s Ratings, addressing U.S. casualty claims reserves, notes that continuing trends of frequent litigation and high damages awards could drive further loss reserve strengthening. As an example, the report references Swiss Re’s $3 billion-plus addition to its P/C reinsurance U.S. liability reserves in the first nine months of 2024.

Still, in Moody’s view, current reserving levels are reasonable overall.

Sizable adverse casualty loss reserve development is one of four factors that Moody’s indicates could prompt an overall global P/C outlook revision back to negative.