Fitch maintains negative outlook on U.S. P&C industry in 2009

Fitch Ratings’ outlook remains negative for the U.S. property and casualty industry, for both personal and commercial lines insurers.
“While a modest recovery of bond and equity markets may lead to a reduction in unrealized investment loss balances for the first half of 2009, considerable economic and investment uncertainty remains,” Fitch noted in its recent report, Property/Casualty Industry Statutory Results and Forecast.
“Investment returns are expected to remain inhibited by low yields and recognition of other-than-temporary impairments (OTTI) into earnings.
“Also, near-term market fundamentals are not supportive of a return to strong underwriting profits and double-digit returns on surplus.”
In fact, the market in 2009 is anticipated to experience an unprecedented two consecutive years of negative premium growth, Fitch notes.
And while many have predicted that underwriting losses and capital reductions in 2008 would lead to a hard market, that doesn’t appear to have happened yet.
“[T]he broader primary insurance market continues to see premium rate declines in the first half of 2009, although the level of the rate declines is moderating,” Fitch says.
Overall, Fitch predicts the industry’s combined ratio will improve slightly over 2008 (it will need to be in the mid-90s to produce adequate return on capital, it says) and returns on statutory surplus will be in the mid-single digits “at best.”