|[December 13, 2012]
Fitch: Property/Casualty Insurers' Capital Position Remains at Historically Strong Level
CHICAGO --(Business Wire)--
Fitch Ratings has maintained its stable outlook for both the commercial
and personal lines sectors of the U.S. property/casualty insurance
industry. Insurers have withstood less favorable underwriting and
economic conditions in the past several years, which has promoted weaker
profitability. However, the market's capital position remains strong,
and most insurers in Fitch's rated universe have sufficient capital to
meet significant future adversity.
Industry surplus levels remain at historically high levels, and capital
adequacy measures, which are based on traditional operating leverage or
on a risk-adjusted basis under Fitch's Prism capital model remain very
strong. Factors that contribute to capital strength include an
investment emphasis on high-quality and liquid bonds, adequate loss
reserve levels, and moderate reinsurance and other credit exposures.
Property/casualty insurers are benefiting from premium rate increases in
nearly all major commercial and personal product lines following several
years of inadequate pricing and stern market competition. This trend is
likely to continue at least through late 2013. Fitch still views the
market pricing environment as 'hardening' as returns on capital remain
below the cost of capital and historical norms.
The industry generated significantly improved underwriting results and
earnings in the first nine months of 2012 relative to the prior year.
However, record fourth-quarter catastrophe losses from Superstorm Sandy
will significantly dampen results.
Based on individual companies' reported loss estimates related to Sandy,
a $20 billion or slightly lower insured loss total appears likely. Due
to the size and nature of Sandy, a larger proportion of losses were
incurred from commercial lines versus personal lines. While Sandy will
represent one of the five largest insured natural catastrophe los
events in history, Fitch does not anticipate significant rating changes
tied to this event.
Fitch projects a 103.4% industry combined ratio for 2012 which is still
5.0 points better than the prior year. Statutory earnings are projected
at nearly 40% higher than 2011 and the statutory return on surplus is
projected at 4.9%.
Underwriting results and net profits are expected to improve in 2013
despite continued challenges from declining investment yields. Fitch is
projecting a very modest underwriting profit in 2013, assuming a return
to historical average insured catastrophe losses. This result would
represent only the fourth time in the last 35 years that the industry
has reported an underwriting profit.
The industry return on surplus is forecasted to improve to 6.6% in 2013.
The property/casualty business' inherent volatility and continue
operating and competitive challenges may make it difficult to further
boost returns in 2014 and beyond.
Fitch will host a teleconference on Monday, Dec. 17 at 11am ET to
discuss its outlook for the North American insurance industry, the
details of which are below:
-- Dial-In: +1-877-819-0869 (North America) or +1-706-902-0405
-- Conference ID: #79856297
There will be a Q&A session following the analysts' prepared remarks.
The full '2013 Outlook: Property/Casualty Insurance' is available at 'www.fitchratings.com'
or by clicking on the link below.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2013 Outlook:
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AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
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