Profit improvement for U.S. P&C industry to continue in 2013: Fitch

The property and casualty insurance industry in the United States is set to continue seeing profit improvements through this year, after solid growth in 2012, according to a Fitch Ratings report released Friday.

Despite more than $20 billion in fourth-quarter insured losses last year following Superstorm Sandy, the industry showed improvement in 2012, Fitch said. The industry’s annual net written premium totaled about $460 billion in 2012, according to the rating agency.

“Net income increased by approximately 80% and generated a return on surplus (ROS) of 6.7% versus 3.6% in 2011, which remains below the historical average of approximately 8%,” the ratings firm said, attributing profitability to premium revenue growth and loss ratio improvement from higher rates and reduced catastrophe losses.

The industry had an underwriting combined ratio of 103.3% in 2012, a significant underwriting loss, but one that signifies improvement over 2011, Fitch noted.

Continued underwriting losses mean prices will continue to rise and they “appear sustainable” at least through the latter part of this year, according to Fitch. The company said it also expects core loss ratio improvement and a “favorable trend” in expense ratios for 2013.

The forecast for the industry’s combined ratio for 2013 is 99.5%, which “would represent only the fourth year in the last 35 years in which the market has achieved an underwriting profit,” Fitch noted.

Fitch also expects improving underwriting results to promote higher industry profits in 2013. “However, the profit contribution from investment income remains constrained by continued declines in portfolio yields,” Fitch said. “The projected industry statutory return on surplus in 2013 is slightly below 7%.”

Overall, the company’s rating outlook for the P&C sector in the U.S. is stable. “The industry’s improved capital levels coupled with more favorable earnings prospects are positive factors but are tempered by uncertain conditions related to medium-term competitive pressures,” it added.

The full report is available on Fitch’s website.