Underwriting losses in the wake of natural disasters in 2017 will help stabilize prices in certain U.S. property and casualty insurance sectors, according to a Fitch Ratings report.
Insurance companies' underwriting results deteriorated during the second half of the year with property damage wrought by hurricanes Harvey, Irma and Maria and the California wildfires, the rating agency said.
The large losses will lead to higher premiums in affected markets, managing director James Auden said in a statement, which included a caution for the long-term outlook.
"But while other underperforming segments may see flatter price changes relative to recent rate declines, any improvement may ultimately be short-lived as competitive dynamics are relatively unchanged," Auden said.
Fitch has a stable outlook for U.S. P&C insurers with a negative fundamental sector outlook.
Companies' operating performance is set to improve for 2018, but the industry will continue to face challenges, Auden said.
"Key impediments include continued highly competitive market conditions, reduced benefits from loss reserve redundancies, and investment earnings challenges from continued low asset yields," Auden said.
Industry profits will decline by an estimated 50% for 2017, Fitch said. The market combined ratio is forecast to be 104.4% for the year, compared with 100.7% in 2016. Policyholders' surplus growth was positive for 2017, aided by significantly higher investment gains. The industry's capital position remains strong, Fitch said.
The rating agency also expects personal and commercial auto rates to increase to adjust to recent unfavorable performance while certain casualty and specialty lines will continue to see a softening of rates.