U.S. property/casualty insurers’ operating earnings decreased in 2015, highlighting the competitive operating environment and low investment yields that challenge insurers’ earnings growth potential, according to a report by Fitch Ratings.

Favorable reserve development and limited catastrophic loss activity helped offset sluggish investment income, the report says.
Fitch’s universe of 45 insurance and reinsurance organizations reported an aggregate a 7.2 percent decline in operating earnings to $47.3 billion in 2015. Fitch said this result corresponds with a group operating ROAE (return on average equity) of 7.6 percent, down from the 8.4 percent return generated in the previous year.

According to Fitch, an operating ROAE of 10 percent or higher is becoming more rare in the current marketplace. Seventeen companies in the group reported a full-year 2015 operating ROAE above 10 percent, with the personal lines and reinsurer sub-segments reporting double-digit returns in aggregate.

Each of the companies in the group reported a net profit in 2015, but net return on equity for the aggregate group deteriorated as the weakened investment market performance led to a significant decline in realized gains relative to the prior year. The group reported net earnings of $51.6 billion in 2015, down 9.6 percent from the net gain of $57.1 billion reported in 2014.

Underwriting performance deteriorated modestly as the group calendar-year combined ratio was 94.5 in 2015, versus 93.4 in the prior year, according to the report.

Fitch said maintaining or improving underwriting performance going forward may prove challenging as competitive forces are promoting flat to declining insurance pricing in many market segments.

Fitch maintains a stable rating outlook for each sector covered in this report — commercial, personal and reinsurance. Its analysts say broad-based rating changes are unlikely in the next 12-24 months. Also, U.S. personal and commercial lines have stable sector outlooks, according to Fitch, while the reinsurance market sector outlook is negative as intense market competition and sluggish cedant demand resulted in a soft reinsurance market.