The U.S. property/casualty industry experienced a small underwriting profit in 2018 following consecutive years of losses driven by natural catastrophes, with further improvement expected in 2019, according to Fitch Ratings Inc.

The industry logged a statutory combined ratio of 99.3% in 2018, representing an improvement over the 103.9% reported in 2017, largely due to a reduction in catastrophe loss experience, the Chicago-based ratings agency said Thursday in a report. But property/casualty insurers incurred substantial catastrophe losses again in 2018, with major events including hurricanes Florence and Michael and California wildfires, according to the report.

U.S. property/casualty insurers also reported favorable premium growth in 2018 fueled by rate increases in several large segments, including auto lines and commercial property, as well as insured exposure growth in a stronger macroeconomic environment, according to the report. Industry direct written premiums rose by about 5%.

Meanwhile, favorable reserve development continued for the 13th consecutive year as the industry reported $12 billion in prior-year reserve releases, according to the report.

“Improved underwriting performance set the industry up for stronger profits, and this profit level is likely sustainable through 2019,” James Auden, Chicago-based managing director, insurance at Fitch Ratings, said in a statement.

Written premium growth is anticipated to remain favorable next year, but below 2018 levels with direct and net written premium volume both projected to rise by about 4%, while Fitch is forecasting that the industry’s underwriting results will continue to improve to a combined ratio of 98.5% for 2019, according to the report.

In 2018, U.S. property/casualty insurers’ statutory net earnings increased by 50% from the year prior to more than $60 billion, while statutory return on surplus of 8.1% topped the market’s 10-year average of 7.3%, according to the report.

“While market pricing improved in many areas in 2018, momentum for a true hard market environment is not evident,” Fitch said in the statement. “While some underwriters can generate adequate returns on capital under current conditions, others face challenges generating adequate profits. Market fundamentals are supportive of similar industry performance in 2019. However, Fitch Ratings anticipates competitive forces will promote price flattening or declines looking further out that will likely promote profit weakening.” 

“With catastrophe losses still above historic norms, near-term property catastrophe exposures remain the primary source of volatility in the industry,” the statement continued. “Management of above average catastrophe-induced losses over the last two years provided a demonstration of the industry’s capital resiliency to adverse events. However, the potential for substantially larger market losses tied to hurricane and earthquake events remains an ongoing concern.”

Fitch is maintaining a stable outlook for the U.S. property/casualty industry and most individual ratings in the sector due to high balance sheet quality and relative stability in operating performance, the ratings agency said.