Key Rating Drivers for U.S. P&C insurance companies

Both mutual and stock organization structure in U.S. property/casualty insurance companies have been successful over time, though a Fitch Ratings report says they take decidedly different routes in terms of balance sheet risks and financial performance.

A comprehensive financial analysis of P/C market insurers by ownership structure reveals material differences in operating and financial strategy.

Whereas stock companies place more emphasis on attracting and retaining capital for better overall profitability, mutual insurers lean towards stronger capital adequacy, which protects against economic and other risks.

Analysis of statutory financial performance measures also reveal significantly better results for the stock companies versus mutual companies.

These differences in ownership structure are important considerations for the sector amid a broader economy that has been grappling with higher inflation for the last several months.

James Auden, Fitch Managing Director

Smaller companies face difficulty in standing out in terms of business profile with ongoing threats in several areas to their competitive position and franchise sustainabilit

James Auden, Fitch Managing Director

While P/C insurers are generally well-equipped to navigate recessionary headwinds should one materialize (see P&C Insurance Pricing Trends).

Fitch’s analysis includes discussion of how mutual and stock insurers with similar business profiles and the same Insurer Financial Strength rating may have quite different key rating driver scores as illustrated in Fitch’s Rating Navigator tool, and that the path to higher IFS ratings through individual key rating driver score likely varies for the typical stock and mutual insurer.

Swiss Re Institute maintain forecast for nominal direct premiums written (DPW) growth at 6.3% in 2023 and 8% in 2024.

Risks are skewed to the downside, but analytics revise up 2023 midpoint return on equity (ROE) estimate to 5.5%. Swiss Re maintain 6% ROE forecast for 2024.

Light catastrophe activityand reserve releases supported underwriting results, but we continue to expect a difficult year for the industry. According to Natural & Man-Made Catastrophe Loss Outlook, the effects of surging inflation on claims costs are only partly offset by the investment benefit from higher interest rates.

by Yana Keller