Fitch Ratings has revised its outlook for the U.S property and casualty (P&C) sector from negative to stable due to a notable recovery in the market following a challenging 2017.
The rating agency’s 2019 outlook report noted that U.S P&C profitability rebounded in 2018 after a meaningful underwriting loss in the previous year, driven by modest improvement in the personal and commercial automobile lines, as well as a decline in catastrophe losses.
Fitch said the revision also reflects improvement in market fundamentals and stabilising factors, such as solid business profiles, strong capital adequacy, and effective risk management processes.
The overall combined ratio for the sector is expected to improve from 104% in 2017 to 99% in 2018, although results this year were still impacted by catastrophe losses from Hurricanes Florence and Michael, and the California wildfires.
U.S re/insurers have also benefited from pricing increases in many property and auto lines, as well as several casualty and liability segments, due to 2017’s underwriting losses.
“While profitability is better and pricing trends were more positive in many segments, we would not characterize this as a hard market,” noted James Auden, Managing Director at Fitch. “Any further performance improvement in the future is in question, given the potential for future price competition and uncertainty in claims trends.”
Going into 2019, Fitch anticipates a continuation in modest underwriting profits and a slight decline in net earnings from lower investment gains, due to rising interest rates and uncertain equity markets.
While the past two years have generated catastrophe losses well above historical norms, the potential for further periods of elevated losses also remains a distinct possibility, Fitch noted, and represents a key source of volatility in the near-term.
U.S P&C profits could also be hit by rising loss costs, with medical costs in danger of overtaking general inflation and rising litigation and tort costs in other segments also posing a risk.
Nevertheless, the industry’s statutory capital base continues to expand, Fitch said, and capital adequacy measures remain supportive of ratings.