Profitability of U.S. P&C industry will decline in 2005: Fitch

The U.S. property and casualty insurance industry will report a deterioration in profitability for 2005, Fitch rating agency predicts.
“While operating performance was on a record-setting pace in the first half of the year, insurers encountered unfavorable surprises in the form of unprecedented natural catastrophe losses in the second half,” Fitch says in a report on the U.S. P&C industry’s 2005 results.
Fitch reviewed individual insurer’s GAAP operating performances for 2005 and concluded that “there is considerable disparity” between individual insurers. “Underwriters that were hardest hit by the hurricane events were reinsurers and personal lines writers with concentrations of business in the Gulf Coast and Florida,” Fitch notes. “Many reinsurers reported sizable operating losses for the year.
“However, numerous regional and specialty underwriters were unaffected by these catastrophe events and reported an improvement in 2005 operating performance relative to the prior year.”
Fitch observes signs of softening markets in many insurance segments in 2005, but adds: “Market conditions remain supportive of underwriting profitability for stronger underwriters in the near term.”
January 2006 insurance renewal rates increased dramatically in market segments affected by the 2005 catastrophes, particularly property and casualty reinsurance, the report says. “Fitch anticipates pricing will continue to firm in these areas through the remainder of 2006. In casualty lines and non-coastal property segments, the events may promote short-term stabilization in rates, but competitive pressure is likely to promote continued rate declines in these segments.”
Adverse loss reserve development continues to haunt a number of insurers that wrote long tail casualty business at the nadir of the last soft market, and have older asbestos exposures, Fitch says. Nevertheless, reserve deficiencies are diminishing for the U.S. property/casualty industry in aggregate, as reserves are developing favorably in the more recent and less mature 20022004 underwriting periods.