Net written premiums in commercial lines increased by approximately 4 percent in 2012, according to new figures from Fitch Ratings, due out tomorrow in a report, titled “Commercial Lines Market Update.” This revenue growth is attributable largely to significant increases in premium rates over the last 18 months across nearly all segments and a return to modest insured exposure increases in a slower growth economic environment.

U.S. commercial lines insurance underwriting performance also improved moderately last year, according to Fitch’s review of initial industry financial results for 2012, indicating that a market turn is taking hold, citing a second year of material premium growth and signs that loss ratios reached a cyclical peak in 2011 as indicators.

Accident year loss ratios for primary lines fell by nearly two points to 74.3 percent. This loss ratio still translates into a significant underwriting loss and remains 17 percentage points above the previous cyclical best of 2006. Yet Fitch relays optimism in the report, stating that commercial lines accident year loss ratios are anticipated to show continued improvement for the time being, as positive pricing momentum should be sustained through the latter portions of 2013.

Indeed, accident year 2012 loss ratios improved in all major commercial segments, except for medical professional liability (MPLI). Also, despite recent underwriting improvements and more sharply rising premium rates, workers' compensation remains one of the weakest performing segments. Underwriters in this segment must contend with rising claims severity due to medical cost changes that are higher than general inflation levels.

For the second straight year, natural catastrophe events had a significant impact on commercial lines insurers: Accident year loss ratios in the special property line are on par with 2011's result, which is nearly 15 percentage points above historical industry averages.

The forthcoming special report should also provide further depth into profitability in the broader commercial lines sector and factors within individual lines that are driving results.

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