Chicago - The U.S. property/casualty insurance industry will report deterioration in profitability in 2005 because insured catastrophe losses reached record levels in 2005, according to Fitch Ratings.The decrease in profitability is largely due to the destruction from Hurricane Katrina, the most devastating insured loss event in history, and Hurricanes Rita and Wilma, each of which will rank among the top 10 historical insured loss events.
Indeed, underwriters that were hardest hit by the hurricane events were reinsurers and personal lines writers with concentrations of business in the Gulf Coast and Florida.
The Insurance Services Office's (ISO) Property Claims Service (PCS) unit reported that property/casualty insurers incurred $56.8 billion in catastrophe losses in 2005. This figure is roughly double the previous record of $27.3 billion catastrophe losses paid by insurers in 2004 and the $26.5 billion paid in 2001, which included the terrorist attacks of Sept. 11, 2001.
Fitch's year-end 2005 results reveal that, despite steady rate reductions in many insurance segments in the past two years, market conditions remain supportive of underwriting profitability for stronger underwriters in the near term. As evidenced by January 2006 insurance renewal results, rates have increased dramatically in market segments affected by the 2005 catastrophes, particularly property/casualty reinsurance.
Fitch anticipates that pricing will continue to firm in these areas through the remainder of 2006. In casualty lines and non-coastal property segments, the events may promote short-term stabilization in rates, but competitive pressure is likely to promote continued rate declines in these segments.
Source: Fitch Ratings
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