Dec 13 - Fitch Ratings has maintained its stable outlook for both the
commercial and personal lines sectors of the U.S. property/casualty insurance
industry. Insurers have withstood less favorable underwriting and economic
conditions in the past several years, which has promoted weaker profitability.
However, the market's capital position remains strong, and most insurers in
Fitch's rated universe have sufficient capital to meet significant future
Industry surplus levels remain at historically high levels, and capital adequacy
measures, which are based on traditional operating leverage or on a
risk-adjusted basis under Fitch's Prism capital model remain very strong.
Factors that contribute to capital strength include an investment emphasis on
high-quality and liquid bonds, adequate loss reserve levels, and moderate
reinsurance and other credit exposures.
Property/casualty insurers are benefiting from premium rate increases in nearly
all major commercial and personal product lines following several years of
inadequate pricing and stern market competition. This trend is likely to
continue at least through late 2013. Fitch still views the market pricing
environment as 'hardening' as returns on capital remain below the cost of
capital and historical norms.
The industry generated significantly improved underwriting results and earnings
in the first nine months of 2012 relative to the prior year. However, record
fourth-quarter catastrophe losses from Superstorm Sandy will significantly
Based on individual companies' reported loss estimates related to Sandy, a $20
billion or slightly lower insured loss total appears likely. Due to the size and
nature of Sandy, a larger proportion of losses were incurred from commercial
lines versus personal lines. While Sandy will represent one of the five largest
insured natural catastrophe loss events in history, Fitch does not anticipate
significant rating changes tied to this event.
Fitch projects a 103.4% industry combined ratio for 2012 which is still 5.0
points better than the prior year. Statutory earnings are projected at nearly
40% higher than 2011 and the statutory return on surplus is projected at 4.9%.
Underwriting results and net profits are expected to improve in 2013 despite
continued challenges from declining investment yields. Fitch is projecting a
very modest underwriting profit in 2013, assuming a return to historical average
insured catastrophe losses. This result would represent only the fourth time in
the last 35 years that the industry has reported an underwriting profit.
The industry return on surplus is forecasted to improve to 6.6% in 2013. The
property/casualty business' inherent volatility and continue operating and
competitive challenges may make it difficult to further boost returns in 2014
Fitch will host a teleconference on Monday, Dec. 17 at 11am ET to discuss its
outlook for the North American insurance industry, the details of which are
-- Dial-In: +1-877-819-0869 (North America) or +1-706-902-0405 (International)
-- Conference ID: #79856297
There will be a Q&A session following the analysts' prepared remarks.
The full '2013 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: 2013 Outlook: Property/Casualty