Commercial lines insurance underwriters in the United States have generated two consecutive years of significant underwriting profits. However, market sentiment has turned less favorable recently as sustainability of future performance is challenged by several factors.

Executive Summary

Top line revenue challenges lie ahead in the commercial lines insurance market with the recent onset of flat-to-deteriorating pricing conditions, coupled with restricted insured exposure increases, says Fitch's Jim Auden, who also reviews loss and expense challenges, which together imply profit declines ahead.

Favorable 2014 Results

U.S. commercial lines aggregate statutory net written premium volume increased by 3.8 percent in 2014, which represents the fourth consecutive year of solid premium increases. The level of premium growth, however, has slowed relative to 2011-2013.

The broader commercial lines market posted the second consecutive year of underwriting profits in 2014 with a combined ratio of 96.1, which was approximately a point higher than the prior years result. The strong improvement in results is tied largely to the impact of several rounds of renewal rate increases, lower insured losses from natural catastrophes and continued stability in loss cost trends, which is revealed in part through favorable prior period loss reserve development.

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