Chicago, IL – The U.S. commercial lines insurance market segment reported its fourth consecutive underwriting profit in 2016, but the combined ratio deteriorated by 4 percentage points to 99% according to a new report from Fitch Ratings. Poor results tied to adverse loss reserve development posted in the last two years by traditional commercial lines market leader, American International Group, Inc. (AIG), had a significant effect on overall industry results. Excluding AIG, the industry commercial lines combined ratio was 3.4 points lower in 2016.
“Industry competition has weakened market pricing significantly in the last three years, gradually taking a toll on profitability, and it’s unlikely we will see a reversal in pricing trends anytime soon,” said Jim Auden, Managing Director, Fitch Ratings. “Competitive market conditions, reductions in reserve strength and catastrophe losses are likely to push near term profits down further.”
Commercial auto continues to be the weakest link in commercial lines with a combined ratio of over 110% in 2016. Unfavorable loss severity trends and rising adverse loss reserve development continue to plague this segment.
Commercial property lines remain a key driver of underwriting profits in commercial lines with a fourth consecutive year of segment combined ratios below 90%. Accumulated pricing weakness at each renewal and the inevitability of more severe catastrophe losses at some point will lead to weaker property results going forward.
Workers’ compensation, the largest U.S. commercial lines segment by premium, with segment combined ratios of approximately 95% in 2015 and 2016, continues to be a bright spot. Employment growth and macroeconomic improvement are key contributors to this change, along with relatively stable claims trends. Implementation of the Affordable Care Act (ACA) and a corresponding shift of individual medical care delivery away from workers’ compensation to other markets may also be a factor that bears further study.
The full report is available at www.fitchratings.com or by clicking here: Fitch: U.S. Commercial Lines Market Update