Longer term analysis of investment results for the U.S. property/casualty insurance industry shows weaker returns and greater volatility in recent years relative to past performance. The industry faces significant challenges in the future due to the prevailing low interest rate environment and economic uncertainty.
Fitch's new report 'Property/Casualty Insurer Investment Performance' examines long run statutory investment performance for the property/casualty insurance industry and its largest insurers. The report analyzes investment returns profits from investments in various ways over time. Comparing longer term performance reveals the tradeoffs companies make regarding returns and volatility of returns in their asset allocations. Companies exhibiting investment results comparable with industry or peer norms with lower return volatility are viewed positively in Fitch's rating process.
In spite of a general market value recovery on invested assets following the financial crisis, the property/casualty industry moved to more conservative investment strategies by reducing non-affiliated common stocks and below investment grade securities. However, given the importance of investment income to overall profitability, this current trend will slow capital formation and earnings performance will increasingly depend on the ability to improve underwriting performance.