Competition drives ‘declining insurance pricing’ in many U.S. segments: Fitch

The combined ratio for a group of insurance firms tracked by Fitch Ratings Inc. deteriorated 1.1 points from 93.4% in 2014 to 94.5% in 2015, Fitch reported Tuesday.

“Fitch’s universe of 45 (re)insurance organization reported an aggregate a 7.2% decline in operating earnings to $47.3 billion in 2015,” New York City-based Fitch Ratings stated in a press release.

“Underwriting performance deteriorated modestly as the group calendar-year combined ratio was 94.5% in 2015, versus 93.4% in the prior year,” Fitch Ratings added. “Maintaining or improving underwriting performance going forward may prove challenging as competitive forces are promoting flat to declining insurance pricing in many market segments.”

Fitch Ratings announced Tuesday the release of a report titled North American P/C Insurers’ 2015 GAAP Financial Results.

The report was released a month after another ratings agency, A.M. Best Company Inc., released a report titled 2016 Review & Preview of U.S. P&C. In that report, Oldwick, N.J.-based A.M. Best includes actual statistics for 2010 through 2014, estimates for 2015 and projections for 2016. The firm estimated the U.S. P&C industry had a combined ratio 98% in 2015 and that will deteriorate 1.2 points to 99.2% this year.

A.M. Best estimated the industry had net premiums written of US$516.4 billion in 2015, up from US$502.9 billion in 2014.

A.M. Best said at the time that the reserve position for the U.S. p&c industry strengthened over period 2002 through 2007 but is estimated to have weakened since then.

“The weakening is expected to be much lower in 2015 due to continued asbestos and environmental strengthening combined with AIG’s recently announced large reserve charge,” A.M. Best stated, alluding to the announcement by American International Group Inc. that AIG strenghtened its loss reserves, during the final quarter of 2015, by US$3 billion.

AIG said Feb. 11 it had strengthened loss reserves “primarily in the long-tail classes of business, particularly U.S. excess and primary casualty and financial lines, reflecting adverse development on prior accident years, particularly in accident years 2010 and prior.”

The following week, A.M. Best said it estimated that, industry-wide, favourable loss reserve development ” will decline to approximately $87 billion.”

On March 15, Fitch Ratings suggested that “Favorable reserve development and limited catastrophic loss activity helped to offset sluggish investment income,” in the U.S. P&C insurers it tracks.

Fitch Ratings added it had “stable sector outlooks” for U.S. personal and commercial lines, “while the reinsurance market sector outlook is negative as intense market competition and sluggish cedant demand resulted in a soft reinsurance market.”