Fitch Keeps Stable Outlook for P/C Insurers After Underwriting Profit in 2018

April 22, 2019

After two consecutive years of combined ratios above 100, the U.S. property/casualty industry returned to a modest statutory underwriting profit in 2018 as catastrophe losses slowed, premium growth accelerated and several key product segments enjoyed favorable results, according to Fitch Ratings in a special report.

The industry logged a statutory combined ratio of 99.3 in 2018.

“Improved underwriting performance set the industry up for stronger profits, and this profit level is likely sustainable through 2019,” said James Auden, managing director, Insurance at Fitch Ratings. In 2018, U.S. P/C insurers’ statutory net earnings increased by 50% from the year prior to over $60 billion while statutory return on surplus of 8.1% topped the market’s 10-year average of 7.3%.

In its report, “U.S. Property/Casualty Industry Statutory Results and Forecast Performance Improves on 2018 Underwriting Profit,” Fitch analysts said that while market pricing improved in many areas in 2018, they do not see momentum for a true hard market environment as evident.

“While some underwriters can generate adequate returns on capital under current conditions, others face challenges generating adequate profits,” the analysts said in the report. Market fundamentals are supportive of similar industry performance in 2019, however they anticipate that “competitive forces will promote price flattening or declines looking further out that will likely promote profit weakening.”

Property catastrophe exposures remain the primary source of volatility in the industry. While the industry managed above average catastrophe-induced losses over the last two years, Fitch sees the potential for substantially larger market losses tied to hurricane and earthquake events as an ongoing concern.

Fitch continues to keep a stable outlook for the U.S. P/C industry and most individual ratings in the sector due to high balance sheet quality and relative stability in operating performance. The industry’s aggregate policyholder surplus declined by 2% in 2018 due to shareholder dividend payments and unrealized investment losses amidst second half 2018 market volatility. Fitch Ratings said it expects surplus to increase moderately in 2019, barring a significant reversal from investment market performance in the first quarter.

Source: Fitch Ratings

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