U.S. commercial property loss ratios improve sharply in 2013: Fitch

Fitch Ratings Inc. released this week its commercial lines market update for the United States, reporting an increase in premiums in 2013 for all lines other than medical-professional liability, sharp drops in the loss ratios, in 2013, in special property and commercial multiperil and a “significant underwriting loss” in workers compensation.

“Underwriting performance improved in nearly all major commercial insurance market segments in 2013,” Fitch wrote in its update, released Wednesday.

“Property-related segments, including specialty property and commercial multiperil, showed the sharpest change. These segments experienced weaker results in 2011 and 2012 due to inordinate catastrophe-related losses.”

In 2013, U.S. carriers made a combined total of $196 billion in net premiums written, Fitch reported. Of that, 21% was in workers compensation, 17% was in commercial multiperil, 4% was in medical professional liability, 13% was other liability-occurrence, 13% was in fire and allied and  8% was in other liability-claims made.

“Net written premiums grew by 3.6% in 2013, down moderately from the prior year,” Fitch stated. “The reported accident year loss ratio improved by nearly 6 points over the prior year to 67.7% in 2013.”

The report also includes changes in net premiums written  by segment. All segments except medical professional liability (which was down 3.7% in 2013) had an increase in net written premiums in 2013.

“Competitive conditions in the (medical professional liability insurance) market resulted from strong capital expansion by specialist insurers in the recent past,” Fitch reported. “

Additionally, MPL specialists face competitive threats from policyholders moving to alternative self-insured products. The implementation of the Affordable Care Act (ACA) is altering the structure of healthcare markets. Physicians and other healthcare providers are slowly shifting to employment with hospitals or larger medical groups that are more likely to use captives or other alternative insurance products.”

Fitch also included accident-year loss ratios, for seven different classes of commercial insurance, for each of the past five years.

The loss ratio for commercial multiperil was 62.1% in 2013, down from 71.6% in 2012. In special property, the loss ratio dropped from 74.9% in 2012 to 59.1% in 2013.

“Property-related segments showed the most favorable swing in underwriting performance,” Fitch stated. “Catastrophe-related losses were less severe in 2013, following two consecutive years of above-average catastrophe losses.”

Meanwhile, the workers compensation segment “continues to generate a significant underwriting loss,” Fitch reported.

Results in workers compensation have “turned around” since 2011, “given withdrawals of underwriting capacity in the most troublesome markets and more far-reaching underwriting and pricing actions,” Fitch stated. “However, further steps are required to move this business to an underwriting profit as Fitch estimates an accident-year combined ratio of 107% in workers’ compensation for 2013.”