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Fitch: Capital Strength, Profitability Support Stable P/C Industry Outlook in 2015Fitch Ratings maintains its stable rating outlook for both the commercial and personal lines sectors of the U.S. property/casualty insurance industry in 2015. In addition, the fundamental sector outlook is stable based on expectations that industry earnings will decline in 2015, but the market in aggregate will generate an underwriting profit 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. The recent hardening phase of the market underwriting cycle has peaked as abundant underwriting capacity and heightened competition are promoting a shift towards flat to declining insurance premium rate changes. The commercial lines segment was under greater pressure as prices leveled in most segments and are declining in property lines, while personal lines showed continued positive momentum. Industry written premiums will expand by over 4% in 2014, reflecting benefits of previous price changes and stronger economic growth. The industry aggregate combined ratio will deteriorate in 2014 due to higher accident year loss ratios, higher natural catastrophe losses and reduced favorable loss reserve development. Still, the industry will generate a second consecutive year of underwriting profits with a projected combined ratio of 97.5% for 2014, up from 96.2% in 2013. Statutory underwriting performance will continue to decline in 2015 with an industry statutory combined ratio forecast of 99.0%. Fitch's 2015 forecast assumes catastrophe losses remain within normal historic ranges and the trend toward moderating favorable reserve development continues. Reduced underwriting profits and strain on investment income from low portfolio yields will lead to reductions in net earnings and return on surlus is projected at 6.4% in 2015, versus 8.1% in 2014 and 11.4% in 2013. Fitch believes that the industry's capital position remains strong as policyholders' surplus will reach another record level approaching $700 billion at year-end 2014. Consequently, a near-term change to a negative rating outlook is unlikely, barring a sharp decline in capital from multiple adverse events such as highly severe catastrophe losses, equity 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 report: '2015 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: 2015 Outlook: U.S. Property/Casualty Insurance (Competitive Forces Promoting Earnings Decline) http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=830988 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. |
