Fitch Sees Stronger Commercial Lines But Weaker Auto, Work Comp Results Coming

December 6, 2019

The U.S. property/casualty insurance sector should see small improvements in underwriting profits in 2019 and 2020, thanks largely to commercial lines price increases, Fitch Ratings predicts in a new report.

But personal auto and workers’ compensation will be two lines that buck the trend as they weaken through next year, Fitch said.

“Rising premium rates in many commercial lines segments should benefit underwriting profits modestly,” Fitch Managing Director Jim Auden said in prepared remarks. “As that trend accelerates, loss cost trends including disruption from rising litigation costs and social inflation in the liability space and the ever-present risk of catastrophe losses are issues to watch.”

Fitch said it expects pricing changes to moderately outpace loss costs in 2020, leading to a projected 97.0 industry combined ratio in 2020, compared to Fitch’s predicted 98.0 combined ratio for 2019.

Commercial lines market rate hikes have trended higher for eight consecutive quarters, according to statistics cited by Fitch, including a 6.2 percent jump in the 2019 quarter. Fitch cites changes in risk appetite and underwriting limits from several large underwriters in longer tail casualty and large account property business as reasons for the steady increase.

The outlook for workers’ compensation and personal auto is not as bright, however.

According to the ratings agency, workers’ comp rates have declined for almost five consecutive years (although it remains by some measures as the most profitable commercial lines segments.)

Personal auto insurance pricing “appears to have peaked” after a number of years of strong pricing and underwriting decisions that returned the segment to profit in 2018 and 2019, according to the ratings agency. Things changed, at least in terms of premium increases.

“Premium rates have now flattened,” the Fitch report noted about personal auto trends.

Other trend predictions:

  • Direct written premium for U.S. property/casualty insurers should grow by nearly 5 percent in 2019 and 4.4 percent in 2020.
  • Net written premiums will grow by 2.5 percent for 2019, down from 11 percent in 2019. Net premiums will grow by just under 4 percent for 2020.
  • Investment income will remain relatively flat in 2020, with portfolio yields hovering around the 3 percent range and lower-still realized investment gains.
  • Full year insured losses from catastrophe events should be slightly below the historical norm of 4 percent in 2019. Insured cat losses hit above average at 5 percent of earned premium in 2018 and 10 percent in 2017.

Source: Fitch Ratings

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