Fitch's overall rating outlook for the U.S. property/casualty sector remains stable. Insurance premium rates have significantly improved across most product segments since the second half of 2011. As the industry is still generating a significant underwriting loss, prices are continuing to rise and appear sustainable at least through the latter portion of 2013, the rating agency said.
Fitch anticipates premium growth to remain favorable in the near term and forecasts a calendar year combined ratio of 99.5 percent. This would represent only the fourth year in the last 35 in which the market has achieved an underwriting profit.
While improving underwriting results are anticipated to promote higher industry profits, the profit contribution from investment income remains constrained by continued declines in portfolio yields, Fitch said. The projected industry statutory return on surplus in 2013 is slightly below 7 percent.
Industry policyholders' surplus’ (PHS) 6-percent increase in 2012, and relatively unchanged statutory operating leverage ratios in 2012 suggests that industry capital levels remain strong.
The industry posted sharply improved statutory profitability in 2012, despite more than $20 billion of fourth-quarter insured losses from Superstorm Sandy, Fitch said. This profitability was driven by premium revenue growth and loss ratio improvement from higher premium rates and reduced catastrophe losses.
