Moody’s has upgraded its rating on the US commercial property and casualty insurance sector from negative to stable.

It says it has changed the rating due to recent stabilisation of pricing, particularly in casualty rates.

Moody’s Senior Credit Officer Alan Murray says business is starting to flow back to US insurers, suggesting the underwriting cycle is poised to turn.

“Two additional considerations – one macro-economic and the other related to the industry cycle – are supportive of a stabilised outlook for the sector,” he said.

“While macro-economic trends such as high unemployment and weak economic indicators will continue to dampen new business growth, commercial lines insurers are reporting flat-to-modest growth.

“Insurers will be under pressure to raise prices given weak current-year underwriting margins.”

Mr Murray says the ratings agency does not expect to see a hard market emerge unless a large financial shock or extraordinary catastrophe losses result in a significant decline in capital.

“Overall, US reserves remain adequate to slightly redundant across standard lines, notwithstanding significant reserve releases and weakening trends for recent accident years,” he said.

“Capital adequacy – although below peak levels in 2006 – remains strong by comparison with previous historical averages on a risk adjusted basis. This should enable insurers to absorb prospective underwriting and capital market volatility without meaningful impact on financial strength.”

Mr Murray says despite the challenges insurers face, their good capitalisation and liquidity, strong asset quality and moderate operating profile will enable them to handle future major catastrophes and capital market volatility.