Fitch Foresees P-C Sector Loss By 2009

The property-casualty insurance industry should end 2007 with a fourth year of double-digit returns on statutory capital, but the soft market cycle could lead to a loss by 2009, Fitch Ratings said today.

Commenting on its review and outlook for the U.S. p-c industry for 2007-2008, Fitch Ratings analyst James B. Auden said while the sector produced strong results in 2007, it is questionable whether the industry will continue that strong performance past 2008.

The industry will likely see an underwriting loss in 2009, he said.

During a telephone conference call discussing the insurance industry outlook, Mr. Auden said that after 2008 market conditions will show deterioration and make underwriting discipline more difficult for carriers as they seek market volume.

He said that insurers have enough cushion at the moment to weather the cycle downturn and he did not see a change in the cycle for awhile, which could lead to some carriers going back to bad underwriting practices.

Mr. Auden said Fitch predicts a combined ratio of 92.7 for 2007, up from 91.6 in 2006. The trend forecast in 2008 will see a combined ratio increase to 97.3.

In its report Fitch said the outlook for the p-c industry remains stable, but a shift to a positive outlook “is difficult to envision over the long term given the market's inherent cyclicality.”

However, despite the softening, a shift to negative outlook is also unlikely due to improvements in companies' balance sheets and capital positions.

Catastrophe losses for 2007 were light compared to the median loss over 15 years. Catastrophe losses are expected to be at $7.3 billion.

Fitch said the softening trend in commercial insurance is expanding to catastrophe-affected markets such as homeowners and commercial property in coastal areas and property reinsurance. This was helped by a “light” hurricane season in 2006.

Among the insurers Fitch monitors, the rating firm said there were more upgrades than downgrades in 2007, with 10 upgrades to four downgrades. This compares with five upgrades and two downgrades in 2006, a reversal of 2004 and 2005 where downgrades outpaced upgrades.