The property-casualty insurance industry can expect a “modest” underwriting loss this year as soft market pressures deteriorate underwriting profits, according to a rating service analysis.

Fitch Ratings said in a report that it has revised its forecast for this year and predicts that the industry will shift from a profitable combined ratio of 98.1 into the loss column with a 100.4 combined ration.

The poor underwriting results, coupled with a modest decline in investment income, will translate into an estimated return on surplus of 7.6 percent, down from 9.2 percent previously projected, the firm reported.

Fitch said it believes there will be an increase in the run-rate incurred losses “with a sharper deterioration occurring in the commercial lines segment than personal lines.”

The rating service is anticipating a “return to historical averages” for insured losses from natural catastrophes from below normal averages experienced in 2006 and 2007.

Underwriting will also continue to benefit from release of favorable loss reserve developments from prior underwriting periods. Timing of the release is difficult to predict, said Fitch, but “the industry still has a modest reserve redundancy.”

The downward trend is expected to continue through 2009.

“Currently, there is no catalyst evident for a shift to a hardening market trend,” Fitch said, and the trigger would probably be a large underwriting loss or “some significant event that removes capital.”

Fitch said it “does not envision any meaningful shift in pricing trends until the second half of 2009 at the earliest.”