Fitch Sees P/C Insurers’ Underwriting Results Improving in ’03

May 12, 2003

Fitch Ratings’ current estimate is that the domestic property/casualty insurance industry will experience an improvement in the combined ratio to 103.9 percent in 2003 from 107.2 percent in 2002, with an increase in premium volume of approximately 10 percent in 2003, according to a new report.

Although, this represents a significant improvement in underwriting performance from 2000 and 2001, these results are still insufficient for producing an adequate return on capital.

“The U.S. property/casualty insurance industry made a significant recovery in 2002, following its worst year ever in 2001,” said James Auden, senior director, Fitch Ratings. “We believe that 2002 was a transition year for the property/casualty markets, as companies restored underwriting disciplines in response to the more apparent poor pricing of recent years and barring any unusual large catastrophe losses, operating results should improve further in 2003.”

Fitch believes due to recent investment results and the current economic and investment climate, it is unlikely that investment performance will improve significantly for the industry over the near term. With new money rates remaining low, the property/casualty insurance industry needs to boost profitability and earned surplus by generating underwriting profits.

Based on Fitch’s estimate of 2002 accident-year results, and a continued hardening pricing environment, companies that are unfettered by prior period underwriting and reserving problems should be able to produce favorable results in 2003.

Fitch maintains its Negative Rating Outlook in the property/casualty commercial lines and reinsurance sectors, expecting a reduction in ratings actions in 2003 but still a greater number of downgrades than upgrades.

Fitch’s Rating Outlook for the personal lines sector remains at Stable, as this sector is less affected by the factors that create uncertainty.

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