While market conditions are likely to worsen, Fitch maintains the stable rating outlook for both the commercial and personal lines sectors of the
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
"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:
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James B. Auden, CFA
Source: Fitch Ratings