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TMCNet:  Fitch: Better Profitability on Pricing Improvement Promotes Stable P/C Industry Outlook in 2014

[December 11, 2013]

Fitch: Better Profitability on Pricing Improvement Promotes Stable P/C Industry Outlook in 2014

CHICAGO --(Business Wire)--

Fitch Ratings has maintained its stable rating outlook for both the commercial and personal lines sectors of the U.S. property/casualty insurance industry in 2014. In addition, the fundamental sector outlook is stable based on expectations for a second consecutive year of underwriting profits in 2014, with a modest reduction in projected underwriting performance and earnings for the year. In a new Outlook Report, Fitch discusses the rationale for its market outlook and key factors that will influence insurer performance in the near term.

Insurers have benefited from higher premium rates in nearly all commercial and personal lines over the last two years. This trend has fostered a return to strong premium growth and meaningful loss ratio improvement. Core underwriting improvements, combined with a sharp reduction in insured losses from natural catastrophes will lead to a 2013 industry combined ratio of 96.4% versus 103.2% in 2012. This result represents the best underwriting year since 2007, and only the fourth year in the last 35 with an aggregate combined ratio below 100%. The industry return on surplus is projected at 8.5% in 2013 which exceeds the long run historical average of 8%.

Looking forward, there are growing signs that the recent hardening phase of the market underwriting cycle has peaked. Recent premium movements remain positive, but the magnitude of rate changes is declining in many areas. A further flattening in pricing is more likely in the latter half of 2014 as underwriting capacity remains abundant and will likely spur heightened market competition for business.

Fitch is projecting modest deterioration in underwriting performance in 2014 with an industry statutory combined ratio of 97.3%. The recognition of recent favorably priced business into earned premiums will foster core loss ratio improvement, but this will be offset by an nticipated return to historical loss levels from natural catastrophes and a reduction in favorable loss reserve development from prior underwriting periods. Reduced underwriting profits and strain on investment income from low portfolio yields will lead to reductions in net earnings and return on surplus is projected at 7.4% in 2014.

Industry policyholders' surplus will reach record levels at yearend 2013. Fitch believes that the industry's capital position remains strong based on several quantitative measures. As such, a change to a negative rating outlook is less likely in the near term, barring a sharp decline in capital from severe catastrophe losses and/or investment market declines, or an interest rate/inflation shock that leads to large losses from not only asset value declines but also underwriting losses from reserve deficiencies and pricing inadequacy.

The full '2014 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: 2014 Outlook: U.S. Property/Casualty Insurance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725479

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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