NU Online News Service, Dec. 13, 12:15 p.m. EST

Reserve releases that have cast a smokescreen in front ofnegative earnings in commercial lines will dwindle as theindustry's reserve margin worsens, Moody's said.

According to Moody's Weekly Credit Outlook, "Conditions now arelining up for a meaningful deterioration for the commercial linessector" since loss reserves are predicted to be at break-evenlevels. Therefore, more releases may lead to deficiencies, wrotePaul Bauer, Moody's vice president and senior credit officer.

Mr. Bauer said the commercial industry looks to be headingtoward a pricing "double dip" instead of a recovery as anaccelerated decline in commercial pricing was reported by MarketScout inNovember.

Mr. Bauer wrote there is "no end to the current soft market insight."

Currently, loss costs are stable or trending upward and anyincrease in inflation will quickly accelerate loss costs. Inaddition, medical inflation has outpaced general inflation and lowinterest rates have continued to thwart investment income.

"At present no catalyst for a turnaround is apparent,particularly given that the industry just came though a hurricaneseason with little adverse impact, which may further reduce pricingin property markets," Mr. Bauer said.

At the same time, Towers-Watson's Commercial Lines InsurancePricing Survey (CLIPS) reports that commercial insurance priceswere relatively flat in the 2010 third quarter--the seventhstraight quarter to show such a trend. Prices declined by less than1 percent in the quarter compared to the same period in 2009.

After seeing price increases in 2009, commercial property,directors and officer liability and employment practices liabilityshowed declined, according to Towers Watson.

"The lack of large-scale, market-moving catastrophes in the pastcouple of years--both natural and man-made--had led to excesscapacity and price declines, and we expect to see similar resultsin the near term," said Bruce Fell, director of Towers Watson'sProperty & Casualty practice in the Americas, in astatement.

General liability and commercial property lines had the biggestdrops in pricing at 6 percent and 5 percent, respectively.