After suffering through a year of elevated property losses and poor underwriting results in 2011, US commercial lines insurers are in a position to deliver improved operating results this year. Fitch Ratings believes that increasing commercial insurance rates and premium volume growth will contribute to better run-rate underwriting performance, but loss reserve deterioration and weak investment performance will impede a restoration of industry returns on capital to prior hard market levels.
Underwriting results for commercial lines segments weakened significantly last year, driven in particular by poor results in commercial multi-peril and specialty property lines. The industry aggregate commercial lines accident year loss and loss expense ratio for 2011 rose sharply to 77.6 from 70.2 in 2010 according to data compiled from SNL Financial, representing the worst accident year performance in commercial lines since 2001.
Unusually high catastrophe loss experience was the primary cause of this poorer underwriting performance in 2011, as domestic insurers were battered by severe inland tornado and storm events, as well as Hurricane Irene.
While casualty insurance results have been less volatile than property segments, underwriting trends in casualty businesses remain poor relative to hard market years in the mid-2000s. Surprisingly, industry results indicate that workers' compensation, while still one of the weakest casualty segments, posted an improved accident year loss ratio in 2011.
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