|[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.
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