U.S. property-casualty insurers ended 2007 with a strong fourth quarter, but year-end results fell short of their 2006 record profits and the sector saw a drop in net premium written for the first time since 1943, A.M. Best Co. reported.

Net income fell almost 7 percent to $66.5 billion from $71.3 billion in 2006. The industry's after-tax return on equity slipped to 13 percent in 2007 from 15.3 logged in 2006, the Oldwick, N.J.-based rating service said.

P-c insurers saw their second consecutive underwriting profit in 2007, posting a $22.1 billion gain compared with $32.0 billion in 2006, said Best.

Driven by across-the-board softening in personal and commercial lines pricing, leakage of premium, and a growing interest in alternative forms of risk transfer, net premiums written fell nearly 1 percent to $446 billion in 2007, Best reported.

It found that the p-c industry's combined ratio deteriorated modestly to a still profitable 94.9 in 2007, up from 92.2 in 2006.

Best said strong operating results pushed policyholder surplus up by 7.1 percent to $527.5 billion in 2007 from $492.8 billion at year-end 2006.

Total catastrophe losses were an estimated $6.7 billion in 2007--among the lowest years on record, down from $9.2 billion in 2006, the rating service noted.

The personal lines segment's underwriting results remained strong on favorable but flattening private passenger auto loss-frequency trends, moderate but increasing loss-severity trends and a lack of significant catastrophes, Best said.

The company reported that the commercial lines segment saw its second consecutive underwriting profit in 2007, reflecting continued underwriting discipline, favorable loss-reserve development and mild catastrophe losses.

The U.S. reinsurance segment reported a combined ratio of 94.4 in 2007, slightly better than the 94.9 reported for 2006, said Best.

According to Best, the U.S. p-c industry is projected to record a modest underwriting gain in 2008, as insurers are expected to maintain the delicate balance between growth opportunities and profitability.