Fitch: US Property Casualty Insurers Set for Improved Performance

Following a rough 2017, US property and casualty (P&C) insurers are positioned for better performance this year in the commercial insurance market sector, according to Fitch Ratings' new report, U.S. Commercial Lines Market Update (Underwriting Loss Should Reverse in 2018) (login required).

Fitch said that commercial lines represent approximately 41 percent of US P&C industry net written premiums. In aggregate, this major segment experienced significantly weaker underwriting performance, reporting a combined ratio of approximately 104 percent in 2017 versus 99 percent in the prior year, driven by higher catastrophe losses on property business.

A return toward historical norms for catastrophe losses and pricing improvements in the worst performing market segments should move the commercial lines combined ratio back to a modest 2018 underwriting profit. Still, competitive factors and loss trends reduce the potential for larger, near-term profits that would correspond with adequate returns on capital for commercial insurers. These profit fundamentals are a key consideration behind Fitch's negative sector outlook for commercial lines. 

Industry results in commercial auto insurance remain poor. "Commercial auto insurance remains a chronic problem for underwriters despite numerous rounds of rate increases and underwriting actions," said James Auden, managing director at Fitch. The segment's calendar year combined ratio rose slightly to 111 percent in 2017. "Loss severity trends, rising litigation costs, shortages of experienced drivers, and continued reserve weakness may limit the potential for underwriting improvement in the near term." 

Conversely, workers compensation was the most profitable major commercial market segment, posting a third consecutive large underwriting gain in 2017 in what has historically been a volatile segment. While loss trends remain relatively stable, competitive forces point toward deteriorating segment results going forward, but likely another below-100 percent segment combined ratio in 2018.