Fitch Ratings has maintained a stable outlook for the U.S. property and casualty (P&C) sector’s fundamentals and ratings in 2020, and has said that market players are likely to report an improved underwriting performance in 2019 when compared with the previous year.
Ultimately, Fitch analysts believe that the positive pricing momentum seen in many commercial lines should translate to better underwriting profits, while price changes across the P&C space are forecasted to modestly outpace loss costs in 2020.
Fitch says that this contributes to a projected industry combined ratio of 97% for the year, which is an improvement on the 98% forecasted for 2019.
“Rising premium rates in many commercial lines segments should benefit underwriting profits modestly. As that trend accelerates, loss cost trends including disruption from rising litigation costs and social inflation in the liability space and the ever-present risk of catastrophe losses are issues to watch,” said Jim Auden, Managing Director at Fitch.
Fitch states that an expectation of slightly improved underwriting profits for U.S. P&C market players in 2019, could also occur in 2020, although loss cost trends, underpinned by rising litigation costs and the potential for extreme catastrophe events, could challenge this and serve to dent results.
Extremely high levels of catastrophe losses in both 2017 and 2018 dented the results of many traditional and alternative re/insurers, but a decline in loss activity in 2019, coupled with heightened discipline across the marketplace, has driven an expectation of slightly higher results in 2019.
According to Fitch, the full-year insured loss total from cat events is expected to be below the historical norm of 4% of net earned premiums in 2019. In comparison, insured losses from cat events in 2017 amounted to 10% of net earned premiums and in 2018, this totalled 5%.
While the vast majority of business lines are currently experiencing positive rate momentum, two important segments, workers’ compensation and auto insurance pricing in the personal lines space, are running against the hardening trend, says Fitch.
The ratings agency notes that the financial strength of U.S. P&C insurers continues to reflect strong statutory capital positions that provide firms with the means to withstand considerable adversity in performance.
