OREANDA-NEWS. Commercial lines insurers in the U.S. reported a second consecutive year of strong underwriting profits in 2014. However, market sentiment is currently more subdued as challenges in generating future premium growth are presented from modest anticipated economic expansion, and a more competitive pricing environment, according to a new Fitch Ratings special report.

Profitability in commercial lines going forward are likely to be unfavorably affected by higher accident year loss ratios, reduced favorable prior period reserve development, a shift towards historical norms for catastrophe related losses, and lower investment income from continued declining investment portfolio yields.

Fitch's special report contains a comprehensive update on the U.S. commercial lines insurance market and key market sub-segments, including workers' compensation and commercial auto liability lines. In 2014, commercial lines experienced a fourth consecutive year of favorable premium growth, fueled by moderate price increases and continued favorable reserve development.

Property/casualty industry aggregate commercial lines results were favorable in 2014 with net written premiums increasing by 3.2% for commercial lines in aggregate in 2014, down slightly compared to 2013's growth rate. The reported accident year loss ratio was relatively stable at 66.2% in 2014 relative to 65.8% in 2013. This result compares with a loss ratio of 77.8% posted as recently as 2011.

Workers' compensation results approached break-even levels in 2014 and are expected to report a slight underwriting gain in 2015 on the strength of past pricing actions. Commercial auto remains a weak performing major commercial segment despite an improvement in underwriting results during 2014. Medical professional liability remains challenged and negative trends are expected to continue given lower premium rates and structural changes in the healthcare market.

On a calendar year basis, commercial lines underwriting results continued to be favorably affected by recognition of reserve redundancies from prior accident years in 2014. However, reserves for current underwriting periods are expected to produce lower levels of reserve releases relative to past periods.

All commercial line segments with the exception of commercial auto reported favorable 2014 calendar year reserve development. Medical professional liability continues to report the strongest favorable development of any segment by a considerable margin.

Fitch's stable outlook on the property/casualty (P/C) insurance commercial lines market reflects recent improvements in underwriting performance and profitability, an anticipation that near term results are likely to moderately deteriorate and that most underwriters' capital strength is sufficient to endure significant volatility from risks inherent to underwriting and investment exposures.

The full report, 'Commercial Lines Market Update', is available at 'www.fitchratings.com' under 'Insurance' and 'Research'.