Fitch Ratings: U.S. P/C Industry 2018 Performance Improves on Return to Underwriting Profit

The U.S. property/casualty (P/C) industry returned to a modest statutory underwriting profit in 2018 following two consecutive years of combined ratios above 100% as catastrophe losses slowed, premium growth accelerated and results were favorable in several key product segments, according to Fitch Ratings in a new special report.

Source: Fitch Ratings | Published on April 22, 2019

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The industry logged a statutory combined ratio of 99.3% in 2018. "Improved underwriting performance set the industry up for stronger profits, and this profit level is likely sustainable through 2019," said James Auden, Managing Director, Insurance at Fitch Ratings. In 2018, U.S. P/C insurers' statutory net earnings increased by 50% from the year prior to over $60 billion while statutory return on surplus of 8.1% topped the market's 10-year average of 7.3%.

While market pricing improved in many areas in 2018, momentum for a true hard market environment is not evident. While some underwriters can generate adequate returns on capital under current conditions, others face challenges generating adequate profits. Market fundamentals are supportive of similar industry performance in 2019. However, Fitch Ratings anticipates competitive forces will promote price flattening or declines looking further out that will likely promote profit weakening.

With catastrophe losses still above historic norms, near-term property catastrophe exposures remain the primary source of volatility in the industry. Management of above average catastrophe-induced losses over the last two years provided a demonstration of the industry's capital resiliency to adverse events. However, the potential for substantially larger market losses tied to hurricane and earthquake events remains an ongoing concern.

Fitch continues to keep a Stable Outlook for the U.S. P/C industry and most individual ratings in the sector due to high balance sheet quality and relative stability in operating performance. The industry's aggregate policyholder surplus declined by 2% in 2018 due to shareholder dividend payments and unrealized investment losses amidst second half 2018 market volatility. Fitch Ratings expects surplus to increase moderately in 2019, barring a significant reversal from investment market performance in the first quarter

The full report, "U.S. Property/Casualty Industry Statutory Results and Forecast Performance Improves on 2018 Underwriting Profit," is available at