NU Online News Service, Dec. 9, 3:52 p.m. EST
The property and casualty insurance industry is expected to see an underwriting loss this year, with no let-up in the soft market through 2010 barring a substantial market shift, according to Fitch Ratings.
The findings were in Fitch's "Review and Outlook 2009-2010, U.S. Property/Casualty Insurance." The report said Fitch projects the p&c industry will come in with a combined ratio of 101 this year and an accident-year combined ratio estimated at 103.
Fitch continues to give the industry a negative rating, despite improvements in the industry's investment portfolios and the lack of severe catastrophe losses.
Julie Burke, managing director and head of North American Insurance Ratings, said during a conference call today that last year's move to negative reflected the onset of the economic crisis and its impact on the industry.
She said 45 percent of insurers and reinsurers Fitch rates have been downgraded and the majority of the insurance groups Fitch rates are either negative or on rating watch.
Moving the industry back to stable, she said, would require confidence that the financial crisis has past and that there is no new impact to insurers earnings. She said this analysis implies that some insurers' ratings will need to move to negative before an overall stable rating is given.
James B. Auden, managing director of insurance for the p&c sector, said the industry is solidly entrenched in a soft market cycle and that this could be a prolonged cycle, but it may not be as severe as past cycles.
He said Fitch projects that for 2010 the industry will see a combined ratio of 104, with modest gains in net income. Mr. Auden noted that in order for the industry to return to underwriting profitability it will need to record a combined ratio of 95.
When asked by National Underwriter about a widely reported analyst's assessment that American International Group has an $11 billion reserve deficit, Mr. Auden said that while he has not seen the report, he does believe AIG has suffered a lot of unfavorable developments. However, because of the government backing of AIG, Fitch is not concerned any deficit will have an impact.
Ms. Burke noted that as the company moves back into the private market, however, a reserve deficit could have a negative impact on the ratings.
Regarding the reserve picture of the industry as a whole, Mr. Auden said insurers are in a strong position thanks to the hard market of 2003 through 2006. However, as the soft market plays out, reserves would be scrutinized more closely.
"They are adequate now, but we are watching," he said.
As for the current soft market, Mr. Auden said he believes it will continue through 2010 as capacity remains strong and competition intense. A severe market dislocation, such as severe catastrophe, withdrawal or merger, could profoundly change the market direction, but he said he does not see that happening in the near term.
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