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Fitch Changes P/C Insurance Industry Sector Outlook to Negative
November 30, 2016 / 2:46 PM / in a year

Fitch Changes P/C Insurance Industry Sector Outlook to Negative

(The following statement was released by the rating agency) CHICAGO, November 30 (Fitch) Fitch Ratings has changed the fundamental sector outlook for the U.S. property/casualty insurance sector to negative from stable, reflecting recent declines in profitability and anticipated further earnings deterioration in 2017 due to more competitive market conditions, according to Fitch Ratings' 2017 Outlook report for U.S. Property/Casualty Insurance. "The U.S. P/C industry is at a point in the market underwriting cycle where near-term conditions and profitability are likely to worsen further before any pricing improvement materializes," said James B. Auden, Managing Director, Fitch Ratings. While market conditions are likely to worsen, Fitch maintains the stable rating outlook for both the commercial and personal lines sectors of the U.S. property/casualty insurance industry in 2017, as the majority of ratings in the sector are supported by strong capital strength. In Fitch's view, most insurers will be able to absorb near-term volatility and sector headwinds. "Pricing continues to trend unfavorably in most major P/C segments and there is no catalyst in sight in 2017 that would promote a meaningful shift in pricing trends" added Auden. The P/C industry is likely to generate a statutory combined ratio below 100% for the fourth consecutive year in 2016. However, underwriting profits will prove very modest as the combined ratio forecast is over 99%. Fitch is projecting an underwriting loss in 2017 with the combined ratio reaching 101%. Near-term underwriting results will also be influenced by changes in reported loss reserve development. The P/C industry has benefited from a decade of favorable reserve development experience. However, industry reserve strength diminished marginally over time and most recent accident year business is unlikely to exhibit the strong redundancies of prior hard market periods. Weaker underwriting performance, combined with a reduced contribution to earnings from investment results, is placing considerable pressure on P/C insurer profitability. The industry statutory return on surplus is projected to decline to 6.6% in 2016 from 8.5% in 2015 and fall further in 2017. If larger underwriting losses and even lower sustained returns on surplus (below 4%) emerge beyond 2017, Fitch's industry rating outlook could move to negative, and more individual ratings could be affected unfavorably. Auto underwriting continues to remain weak. Commercial auto is a chronic underperformer. Competitive pressures and unfavorable claims trends are likely to hinder a return to underwriting profits in personal auto in 2017. Catastrophe losses for the industry increased to $17 billion for the first nine months of 2016, up from $15.2 billion for all of 2015, driven by severe wind and Thunderstorm events in Texas and Florida. Fitch expects that losses from Hurricane Matthew will likely fall at the low end of estimates in the range of $2 billion-$8 billion. "The P/C industry continues to undergo technological change particularly in the areas of distribution, policyholder interaction, risk selection tools, pricing and claims adjudication, and policy administration. While Fitch does not expect technology investments to necessarily lead to long-term return on capital improvement, keeping pace with technology is essential for expense structures and to minimize adverse selection risk," added Auden. The full report '2017 Outlook: U.S. Property/Casualty Insurance' is available at 'www.fitchratings.com', or by clicking on the link below. Contact: James B. Auden, CFA Managing Director +1-312-368-3146 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Christopher A. Grimes, CFA Director +1-312-368-3263 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Related Research 2017 Outlook: U.S. Property/Casualty Insurance (Shift to Underwriting Loss Likely as Pricing Weakens Further) here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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