U.S. commercial lines outlook stable: Fitch

The outlook for the U.S. commercial lines sector has been revised from negative to stable by rating agency Fitch. Fitch had placed a negative rating on the sector since September 2000.
Fitch says there will be fewer rating changes in the near term and that the number of downgrades with be close to the number of upgrades. A major factor is the industry’s improved reserve position, the rater explains.
While many insurers have potential reserve shortfalls, the rate says these have been accounted for in current ratings, and the earnings impact of adverse development should be mitigated by underwriting improvement. In fact, Fitch expects the U.S. commercial industry to report its first underwriting profit since 1978 this year. Already in the first quarter the sector has posted a combined ratio of 94.7%, according to the Insurance Services Office (ISO).
Despite moderation of pricing, Fitch sees pricing at generally adequate levels. “Fitch does not anticipate a return to the grossly inadequate pricing and aggressive underwriting practices of the late 1990s in the intermediate term.” This is because of such factors as the exit of under-performing players and an investment environment not conducive to cash flow underwriting.