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Commercial insurance poised for stronger year: Fitch

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U.S. property/casualty insurers are positioned for better performance this year in the commercial insurance market sector, Fitch Ratings Inc. said Wednesday.

In the report titled U.S. Commercial Lines Market Update, New York-based Fitch Ratings said commercial lines represent about 41% of U.S. property/casualty industry net written premiums.

In total, Fitch said, the segment saw a significantly weaker underwriting performance, with a combined ratio of about 104% in 2017, compared with 99% in the prior year, driven by higher catastrophe losses on property business.

A return toward historical norms for catastrophe losses, and pricing improvements in the worst performing market segments should move the commercial lines combined ratio back to a modest 2018 underwriting profit, Fitch said.

“Still,” the report said, “competitive factors and loss trends reduce the potential for larger, near-term underwriting profits that would correspond with adequate returns on capital for commercial insurers. These profit fundamentals are a key consideration behind Fitch's negative sector outlook for commercial lines.”

The report said that “commercial auto insurance remains a chronic problem for underwriters, despite numerous rounds of rate increases and underwriting actions.”

“The segment’s calendar-year combined ratio rose slightly to 111% in 2017,” the report said. “Challenges relating to loss severity trends, rising litigation costs, shortages of experienced drivers and continued reserve weakness may limit the potential for strong underwriting improvement in the near term.”

Conversely, Fitch said, workers compensation was the most profitable major commercial market segment, reporting a third consecutive large underwriting gain in 2017 in what has historically been a volatile segment. While loss trends remain relatively stable, Fitch said that competitive forces point toward deteriorating segment results going forward, but likely another below 100% segment combined ratio in 2018.