OREANDA-NEWS. Fitch Ratings has published a special report titled 'U.S. Property/Casualty Insurance Profit Fundamentals.' The report reviews fundamental drivers of profitability for P/C insurance industry and gives some perspective on where the industry is headed.

The two drivers of profitability and return on equity (ROE) for U.S. property/casualty (P/C) insurers are underwriting and investments. Underwriting returns are a function of underwriting profit and loss margins and operating leverage (premiums/equity). The investment contribution to ROE depends on the investment yield and asset leverage (invested assets/equity).

Changes in other profit drivers over time (lower asset yields and reduced asset and operating leverage) have driven the potential ROE for a given combined ratio significantly lower over time. For the U.S. industry, a 10% statutory return on adjusted surplus (ROS) currently corresponds with a 7% underwriting margin or a 93% combined ratio, whereas a decade earlier a 99% combined ratio would generate a 10% industry ROS.

While the U.S. P/C industry has generated favorable underwriting profits in the last two years, more competitive premium rates and the potential for reduced favorable reserve development and higher catastrophe losses in 2015 are leading to a forecast towards breakeven underwriting results and lower ROE's in the future.

The full report U.S. Property/Casualty Insurance Profit Fundamentals dated March 2, 2015, is available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports'.