Despite ongoing losses related to the Covid-19 pandemic, Fitch Ratings says the US property/casualty (P/C) sector has stabilised with an improving outlook for 2021.
Fitch Ratings analysts are anticipating higher underwriting income in 2021, with a statutory combined ratio below 97%.
This would follow three consecutive years of approximately 99% combined ratios and slight underwriting profits.
Most commercial casualty segments are positioned for some improvement and property lines are expected to benefit from pricing actions and a reversion to historical norms for catastrophe events.
However, workers’ compensation and personal auto are anticipated to show performance deterioration from competitive forces and a return to prior claims frequency trends as economy activity recovers.
“The U.S. property/casualty insurance industry is positioned for better underwriting performance in 2021 based on improving commercial lines pricing conditions,” said James Auden, Managing Director.
“Challenges lie in producing consistent, strong profits from a lower investment contribution to earnings, and volatility from natural catastrophe exposures and claims in liability segments.”
Meanwhile, industry net statutory profits are projected to decline by approximately 11% in 2020 as investment earnings declined and pandemic and natural catastrophe losses slightly outpaced underlying loss ratio improvement.
Fitch says a rebound in profits for 2021 could move the industry return on surplus towards 9% compared with approximately 6% forecast for 2020.
Industry statutory surplus entered 2020 at record levels and will show modest growth at year end, rebounding from a significant first quarter decline amid investment market volatility.
Analysts expect capital adequacy to remain steady by all measures through 2021, while surplus is anticipated to expand by approximately 4% in 2021, with favorable operating earnings offset by lower investment gains and increasing shareholder distributions.
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