Fitch maintains stable outlook for U.S. P&C industry into 2013

Fitch Ratings has maintained its stable outlook for both the commercial and personal lines sectors of the U.S. property and casualty insurance industry, the firm said Thursday. 

“Insurers have withstood less favorable underwriting and economic conditions in the past several years, which has promoted weaker profitability,” Fitch noted. “However, the market’s capital position remains strong, and most insurers in Fitch’s rated universe have sufficient capital to meet significant future adversity.”

An investment emphasis on high-quality and liquid bonds, adequate loss reserve levels, and moderate reinsurance and other credit exposures have all contributed to capital strength, the company said. 

P&C insurers are also benefiting from premium rate increases in nearly all major commercial and personal product lines following several years of inadequate pricing and stern market competition. That trend is likely to continue at least through late 2013, Fitch said, adding that it still views the market pricing environment as ‘hardening’ as returns on capital remain below the cost of capital and historical norms.

Record fourth-quarter catastrophe losses from Superstorm Sandy will “significantly dampen” results for the year, Fitch also noted. 

The ratings agency is projecting a 103.4% industry combined ratio for 2012 ,which is still 5.0 points better than the prior year. Statutory earnings are projected at nearly 40% higher than 2011 and the statutory return on surplus is projected at 4.9%.

“Underwriting results and net profits are expected to improve in 2013 despite continued challenges from declining investment yields,” the company said. “Fitch is projecting a very modest underwriting profit in 2013, assuming a return to historical average insured catastrophe losses. This result would represent only the fourth time in the last 35 years that the industry has reported an underwriting profit.”

Fitch is also forecasting the return on surplus to improve to 6.6% in 2013.