Fitch: US P&C May See Short-Lived Rate Improvement in 2018

US property and casualty (P&C) insurers' operating performance appears set to rebound somewhat next year on the heels of 2017's rough catastrophe-related losses, according to Fitch Ratings' 2018 outlook report for property and casualty insurers, Fitch 2018 Outlook: U.S. Property/Casualty Insurance.

While Fitch's rating outlook is stable for P&C insurers, the fundamental sector outlook remains negative. 

"There are numerous challenges that stand in the way of generating meaningful underwriting profits and adequate returns on capital for the foreseeable future," said managing director James Auden. "Key impediments include continued highly competitive market conditions, reduced benefits from loss reserve redundancies, and investment earnings challenges from continued low asset yields."

Underwriting results deteriorated in the latter half of this year following successive events, including Hurricanes Harvey, Irma, and Maria, along with fourth-quarter California wildfires. As a result, industry-estimated statutory net profits will fall by approximately 50 percent in 2017. As such, Fitch projects a market combined ratio of 104.4 percent for the year, versus 100.7 percent in 2016. 

Policyholders' surplus growth remains positive for full-year 2017, boosted by significantly higher investment gains. The industry capital position remains very strong based on several measures. 

Fitch estimates that the industry-combined ratio will approach break-even levels in 2018 if natural catastrophe-related losses revert towards long-term averages. This underwriting result corresponds with a statutory return on capital of approximately 6 percent, which remains below historical norms.

Higher underwriting losses will promote pricing stabilization in several key segments for P&C insurers. 

"Recent large losses will lead to higher commercial property and homeowners premium rates in markets most adversely affected by the recent storms and wildfires," said Mr. Auden. "But while other under-performing segments may see flatter price changes relative to recent rate declines, any improvement may ultimately be short lived as competitive dynamics are relatively unchanged."

Personal and commercial auto insurance rates will likely continue to move higher in response to recent unfavorable performance. Some casualty and specialty lines, including workers compensation and professional liability, are likely less affected by recent results and will continue to experience softening rates.