Fitch: US P&C Industry Records Combined Ratio Improvement for 2018

The US property-casualty (P&C) industry returned to a modest statutory underwriting profit in 2018, following 2 consecutive years of combined ratios above 100 percent, as catastrophe losses slowed, premium growth accelerated, and results were favorable in several key product segments, according to Fitch Ratings.

The industry recorded a statutory combined ratio of 99.3 percent 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, US P&C insurers' statutory net earnings increased by 50 percent from the year prior to over $60 billion, while statutory return on surplus of 8.1 percent topped the market's 10-year average of 7.3 percent. 

While market pricing improved in many areas in 2018, momentum for a true hard market environment is not evident, according to Fitch. While some underwriters can generate adequate returns on capital under current conditions, others face challenges generating adequate profits. Market fundamentals are supportive of similar industry performance in 2019. However, Fitch anticipates competitive forces will promote price flattening or declines looking further out that will likely promote profit weakening.

Fitch advised that with catastrophe losses still above historic norms, near-term property catastrophe exposures remain the primary source of volatility in the industry. Management of above-average catastrophe-induced losses over the last 2 years provided a demonstration of the industry's capital resiliency to adverse events. However, according to Fitch, the potential for substantially larger market losses tied to hurricane and earthquake events remains an ongoing concern.

Fitch continues to keep a stable outlook for the US 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 percent in 2018 due to shareholder dividend payments and unrealized investment losses amidst market volatility in the second half of 2018. Fitch Ratings expects surplus to increase moderately in 2019, barring a significant reversal from investment market performance in the first quarter.