Fitch predicts U.S. insurers’ profits will decline in 2008

Although increasing competition for business is likely to promote further deterioration of U.S. property and casualty rates in 2008, Fitch Ratings “expects insurers to post a more modest underwriting profit in 2008 [compared to 2007].”
Even so, Fitch also “anticipatesinsurers’ overall profits will decline in 2008, and that the industry will struggle to produce an adequate return on capital, which Fitch estimates for most (re)insurers as a net return on average equity of between 11-12%.”
In a year-end report, Fitch noted U.S. personal lines, commercial underwriters and reinsurers all turned in a “consistently solid” performance, with reinsurers results reporting the strongest results in 2007.
Property-focused reinsurers posted the lowest combined ratios and the highest-profitability levels of all of the sub-sectors, Fitch notes in its report.
“Fitch would expect reinsurers, especially those with significant catastrophe-exposed business, to post higher returns on capital than primary companies in most years, to make up for the higher volatility that is inherent in the operating profiles,” Fitch notes.
Fitch predicted “most underwriters [in 2008] are unlikely to sustain recent levels of underwriting success in the near time,” and that insurers that were the strongest performers during the previous hard market would continue to outperform the overall industry as the market softens.