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In addition to the near-bankruptcy of American International Group, 2008 will stand out as a year when turmoil in global financial markets cut the property and casualty insurance industry’s investment gains in half, pulling down net income and taking a 12 percent slice out of the industry’s aggregate surplus level.

Investment results, however, were not the only force that brought industry net income tumbling to just a few billion dollars from over $60 billion in 2007. The year was also marked by underwriting losses–which in many lines interrupted long periods of underwriting profitability.

By now, it’s well known that two of the industry’s smallest lines–financial guaranty and mortgage guaranty–were responsible for the bulk of the underwriting losses.

These lines–accounting for $8.5 billion in net written premiums and generating $17.9 billion of underwriting losses tied to the subprime mortgage crisis–had previously produced an average combined ratio of less than 60.0 over a period of a dozen years.

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