Hard market trend may not last long: Fitch

Current trends of rate hardening and rising premiums in the insurance industry may be short-lived, according to a report Wednesday from Fitch Ratings Inc.

Market forces may intervene, and rising claims costs may blunt insurers’ upside, New York-based Fitch said in the report.

Fitch said it is “unlikely” insurers will profit in the long term from the hardening market.

“Competitive forces and less favorable claims trends in some lines make it unlikely that recent rising premium rate trends will lead to enduring hard market profits and double-digit returns,” the report said.

Fitch said that a broad-based hard market is an “uncommon occurrence,” with the last one happening more than a decade ago.

“Hard markets are fleeting as underwriting success attracts competition that leads to an erosion of favorable pricing conditions,” Fitch said, adding that it does not believe a true hard market will develop even as pricing rises further.

“Price hardening is likely to continue in commercial lines through 2020. However, Fitch believes financial performance would need to turn considerably worse, and capital reduced by some margin, before pricing momentum for the next true hard market would ensue.”

Insurers eked out an underwriting profit last year as the industry statutory combined ratio moved slightly below break-even to 99% in 2018 after a 104% “catastrophe loss-driven” ratio in 2017, Fitch said, and the market is headed to a slightly larger underwriting gain in 2019.

The industry netted an underwriting profit in four of the past six years, Fitch added.