According to Fitch Ratings in a new report, prospects for the US P&C market are unlikely to improve in 2011 as competitive fundamentals continue to promote inadequate pricing.
Signs of a meaningful shift in market underwriting capacity are not apparent, the rating agency added.
Fitch revised its rating outlook for the commercial insurance sector to stable in September 2010. This was based on the industry's strong capital position and expectations that market pricing conditions are unlikely to improve in the near term, while not reverting to the extreme under-pricing experienced at the beginning of the decade, explained Fitch.
The forecast for 2011 includes only slight premium growth for the industry amidst a continuing moderate economic recovery. The combined ratio is expected to rise to approximately 103.6% from an anticipated 101.5% in 2010.
Net income and return on surplus is projected to be lower in 2011 versus the last two years, in line with Fitch's view that returns on capital will be mired at mid-single digit levels for the next several years.
Profitability will continue to be hindered by current accident year underwriting losses, low investment yields, and below historical average asset and operating leverage. Reported calendar year profits going forward will also benefit less from favourable prior year loss reserve development, Fitch said.
Given the P&C industry's historical volatility and current position in the market underwriting cycle, Fitch views an outlook revision to positive for the industry as unlikely.
The full report '2011 Outlook: U.S. Property/Casualty Insurance' is available on the Fitch website at www.fitchratings.com.