Fitch: Return Prospects Challenged in 2016 as P/C Industry Outlook Remains Stable

CHICAGO--()--Fitch Ratings maintains its stable outlook for ratings in both the commercial and personal lines sectors of the U.S. property/casualty insurance industry in 2016 as the majority of ratings in the sector are not expected to change in the next 12-18 months, according to Fitch's 2016 U.S. Property/Casualty Insurance Outlook Report. The fundamental sector outlook is stable. Near-term earnings deterioration is anticipated, but a shift towards sharply inadequate premium rates or profit levels approaching operating losses is unlikely.

"Market conditions for U.S. property and casualty insurers will be less favorable in 2016 and overall industry performance will likely decline next year; however, statutory capital adequacy will remain strong," said James B. Auden, Managing Director, Fitch Ratings.

The U.S. property/casualty insurance industry faces underwriting challenges, particularly in the commercial lines segment, as a softening premium environment will promote future deterioration in underwriting results. Competitive factors and market underwriting capacity will support continuation of this trend following a three-year run of profitable industry underwriting results, from 2013-2015. Performance for the P/C universe as a whole is anticipated to deteriorate in 2016 toward a break-even underwriting result.

P/C underwriters face greater difficulties in generating adequate returns on capital beyond underwriting and pricing. The investment contribution to earnings continues to decline as falling portfolio yields reduce investment income, and investment gains reported in the last three years are less likely to continue given economic growth prospects and current equity market valuations.

Statutory capital strength is a primary element supporting insurer ratings. Industry policyholders' surplus (PHS) will reach a new record level in 2015, though surplus growth has slowed recently. Capital adequacy measures remain at conservative levels with industry net written premiums / PHS at approximately 0.75x.

Factors that promote future movement towards a negative industry outlook include: large events that significantly affect the industry's capital position such as a large natural catastrophe, discovery of adverse claims experience and reserve deficiencies, and a sharp equity market downturn. Shifts in underwriting trends that led to prolonged underwriting losses for insurers could also lead to consideration of negative sector outlooks.

The full report, '2016 Outlook: Property/Casualty Insurance' is available at 'www.fitchratings.com', or by clicking on the link below.

Additional information is available at 'www.fitchratings.com'.

2016 Outlook: U.S. Property/Casualty Insurance (Competitive Forces Promote Earnings Decline)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874523

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Contacts

Fitch Ratings
James B. Auden, CFA
Managing Director
+1-312-368-3146
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Christopher A. Grimes, CFA
Director
+1-312-368-3263
or
Media Relations
Hannah James, + 1 646 582 4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
James B. Auden, CFA
Managing Director
+1-312-368-3146
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Christopher A. Grimes, CFA
Director
+1-312-368-3263
or
Media Relations
Hannah James, + 1 646 582 4947
hannah.james@fitchratings.com