U.S. p&c industry likely to see deteriorating results in 2011: Fitch

Core underwriting results of the U.S. property and casualty insurance industry are expected to deteriorate in 2011, with net income dropping 30% and industry return on surplus sinking to 4.9%, Fitch reported.
In its 2011 outlook, Fitch made the following projections:

• an underwriting loss of $14.5 million, a sharp deterioration from 2010’s projected underwriting loss of $3.4 million.
• a 0.9% increase in net written premium driven by the personal lines segment as premium in commercial lines continues to contract;
• a 103.6% combined ratio, derived in part from reduced favourable reserve development, representing 1.8% of 2011 net earned premium;
• net income will fall in 2011 by roughly 30% from 2010’s projected $37 million to $27 million; and
• calendar year underwriting results will be affected by higher expense ratios, less favourable loss reserve development, and a return to historical average catastrophe loss experience, from 2010’s modest catastrophe losses.

Catastrophe risk is still a prime source of volatility for the industry, Fitch continued.
“While 2005 losses from hurricanes Katrina, Rita and Wilma were devastating, a larger loss from a Category 4 or 5 storm that directly hit Miami or the Northeast, could cause greater devastation and insured losses,” the report says.
“Despite improvements in modelling technology and skills, Fitch believes that natural catastrophes in areas that have not experienced recent losses, such as a Northeast Hurricane or an earthquake along the New Madrid fault line, will produce much larger than anticipated losses when an event ultimately strikes.”