Fitch notes U.S. P&C industry’s resilience in 2005

The U.S. property/casualty insurance industry “exceeded all expectations in 2005,” Fitch Ratings says in a recent report, “demonstrating considerable resiliency by reporting record net income for the second consecutive year despite enduring the highest insured catastrophe losses in recorded history.”
Fitch goes on to say it “believes that if catastrophe losses return closer to historical norms, the industry will report a return to significant underwriting profits and continued favorable earnings in 2006.”
Such an outlook is based on Fitch’s view that pricing remains at levels supportive of underwriting profits in most segments, as evidenced by strong reported underwriting results in 2006 Q1.
Fitch believes the U.S. property and casualty industry is continuing to “benefit from the hard market that commenced in earnest following the tragic events of Sept. 11, 2001.”
Although insurance premium rates in most U.S. segments declined throughout 2005, “market fundamentals remain supportive of near-term underwriting profits in many market segments,” the rating agency observes.
Fitch nevertheless issued a warning that “the longer-term sustainability of these market conditions remains questionable given pricing trends and the industry’s competitive and cyclical nature.”
The rating agency predicts a return to a softening P&C market in the United States in the future. “It is difficult to predict property/casualty insurance industry results, particularly given the uncertainty related to catastrophe losses for any given year,” Fitch says. “However, the sustainability of this market environment remains questionable due to the industry’s historic cyclicality and lack of long-term underwriting discipline.
“While rates are improving in catastrophe-affected areas, the market continues to soften in aggregate as casualty insurance prices continue to decline.”