Peaks and valleys ahead in the P&C underwriting cycle
Favorable trends are expected to continue in the P&C insurance underwriting cycle but unlikely to result in a hard market, says Fitch Ratings.
After gaining momentum in recent quarters, the U.S. property and casualty (P&C) insurance market is entering a hardening pricing phase, with favorable pricing trends expected to continue in the current P&C underwriting cycle, says Fitch Rating’s new report, “The Property/Casualty Underwriting Cycle: Shallower Market Peaks and Valleys Ahead.”
However, in spite of the market’s positive outlook, a few factors will prevent insurers from gaining high capital returns. “Competitive forces and less favorable claims trends in some lines make it unlikely that recent rising premium rate trends will lead to enduring hard market profits and double-digit returns,” says Fitch Rating’s James Auden in the report.
A cyclical industry
The P&C market is no stranger to cyclical underwriting performance, at times experiencing wide swings in rates and revenue growth. And when examining trends from segment to segment, the differences may be considerable.
According to Fitch, performance in workers’ compensation and commercial auto insurance has diverged incredibly in recent years. Currently, workers’ comp is the only segment seeing a softening of rates, while the automobile and loss-affected property segments have experienced the most significant rate increases. Changes in risk appetite and underwriting limits by a few underwriters and reinsurers have also affected rate movements.
Despite markets firming throughout the industry, it is not yet entered a proper “hard market.” “A hard market in the broad U.S. industry, with market conditions consistent with returns on capital above required rates, represents an uncommon occurrence,” says Fitch. “The last hard market experienced in the U.S. was from approximately 2003 to 2007. Hard markets are fleeting as underwriting success attracts competition that leads to an erosion of favorable pricing conditions.”
But overall, industry underwriting performance is expected to improve for 2019 compared with 2018 when the reported combined ratio was 99%. Also, commercial lines premium rates are positioned to improve through 2020, Fitch affirms.
Read the full report, “The Property/Casualty Underwriting Cycle: Shallower Market Peaks and Valleys Ahead,” on Fitch Rating’s website.
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