Fitch estimates that, relative to 2008, industry performance for 2009 will improve to a modest underwriting loss and a significant increase in profitability. Key elements contributing to this improved underwriting result are significantly lower catastrophe losses, reduced losses related to mortgage insurers and financial guarantors, and continued favorable loss reserve development.
The P&C market has also benefitted from the recovery of investment markets in 2009, with lower realized investment losses, and a large positive shift in market value for insurers' bond portfolios due to narrowing credit spreads.
Fitch's Negative Rating Outlook on the industry implies that downgrade actions are likely to exceed upgrades within the P&C sector going forward, although the number of downgrades is unlikely to approach the levels reached in early 2009.
The Rating Outlook continues to reflect lingering uncertainties related to the broader economy and financial market conditions. Ratings concerns are shifting, however, towards traditional underwriting cycle and competitive pressures as premium rate levels are inadequate across nearly all segments with few signs of positive pricing momentum.
Future prospects continue to look less attractive due to more challenging underlying market fundamentals with inadequate premium rate levels across nearly all segments and few signs of positive pricing momentum. Also, the economic recession has led to reductions in insured exposures and demand for coverage in many areas, which has promoted negative premium growth and a more aggressive stance by insurers to retain existing business.
Given these market fundamentals, the industry statutory combined ratio is projected to increase to 104% in 2010 from 101% in 2009. Industry statutory returns on capital are likely to remain in the mid single-digit range going forward. However, Fitch does not currently anticipate a return to the extremely competitive pricing of the late 1990s and early 2000s.
The full report 'Review and Outlook: 2009-2010: U.S. Property/Casualty Insurance' is available at 'www.fitchratings.com'.
Fitch will host a conference call today at 11 a.m. ET to discuss its outlook for the U.S. insurance industry. Senior analysts from Fitch's Insurance team will cover the three major segments of the industry: life, property and casualty (P&C), and health/managed care. The call will coincide with the publication of an outlook report for the U.S. property and casualty industry. Fitch will publish additional outlook reports for the other insurance sectors in 2009-10.