Workers' compensation saw the most severe underwriting losses, the report notes, with a combined ratio of 113.3. “While the workers' compensation line benefited from reform efforts in various states and continued declines in claims frequency, claims severity in this segment has steadily trended upward,” Fitch notes. The rating agency adds that revenue was hurt by exposure declines as employment levels and payrolls fell during the recession.

Commercial auto has also seen significant exposure reductions and posted a combined ratio of 103.2 in 2010, Fitch says. Commercial multiperil had a combined ratio of 106.7 for accident-year 2010.

In the face of the poor underwriting results, though, Fitch does not expect an imminent turn in pricing, as capacity remains strong “evidenced by continued growth in industry capital to record levels in 2010.” Fitch adds, “Also, past industry cycles reveal that underwriting performance has declined to considerably worse levels before any material pricing shift ensues.”

Fitch says it is maintaining a stable ratings outlook for U.S. commercial lines due to the favorable capital position of most insurers, “coupled with recognition that in the soft market phase of a 'normal' market cycle, returns on capital will run below the cost of capital and long-run industry averages.”