NU Online News Service, Oct. 10, 1:56 p.m. EDT

The U.S. property and casualty industry’s underwriting and operating performance saw significant deterioration in the first half of 2011, due to unprecedented catastrophe-related losses, according to A.M. Best.

The industry’s net income fell 67 percent to $6.9 billion, and its statutory combined ratio deteriorated more than 9 points to nearly 110 through the first half of 2011, A.M. Best says in a report.

Total catastrophe-related losses climbed to about $27 billion in the first half of the year, more than doubling the total reported for the first half of 2010—surpassing the year-end 2010 total.

This is up from about $11.9 billion reported during the same period of 2010, A.M. Best says, noting that U.S. catastrophe losses totaled an estimated $6.2 billion in the first quarter and about $20.8 billion in the second quarter

Consequently, catastrophe-related losses contributed 12.8 points to the six-month 2011 combined ratio compared with 5.8 points during the same prior-year period, according to A.M. Best.

The industry’s investment performance improved modestly through the first half of 2011, however, as insurers reported net investment gains of $28.7 billion, up from $27.6 billion during the first half of 2010.

The industry’s performance measures are likely to remain under pressure for the remainder of 2011, A.M. Best says, because of a number of factors.

They include continued expectations for weak underwriting results due to elevated catastrophe-related losses through the third quarter; sustained challenging market conditions in the commercial lines segment; a sluggish economic recovery; relatively low investment yields and volatility in the investment markets.

On a positive note, A.M. Best says, the industry’s top line continued an upward trend, as net premiums written increased 3 percent to $217 billion in the first half of 2011, from $211.2 billion during the same prior-year period.

Additionally, net premiums earned increased 2 percent to $210 billion in the first six months of 2011, from $205.4 billion for the same period in 2010, as the impact of prior rate increases in the personal lines market continued to roll into earned premiums, A.M. Best says.

Despite record-breaking catastrophe losses, widespread rate hardening in the commercial lines segment has not materialized and premium growth for the overall industry continues to be driven by rate increases in the homeowners and personal auto lines.

A.M. Best notes that rates are rising in select commercial lines, particularly workers’ comp, one of the largest commercial lines.

In the first half of 2011:

• Catastrophe-related losses climbed to about $27 billion, more than double the total reported for the first half of 2010, and already surpassing year-end 2010 total. These losses contributed 12.8 points to the six-month 2011 combined ratio compared with 5.8 points during the same prior-year period.

• The industry’s investment performance improved modestly as insurers reported net investment gains of $28.7 billion, up from $27.6 billion during the first half of 2010.

• Policyholders’ surplus (PHS) increased $1.9 billion, or 0.3 percent, to $556.2 billion, from $554.3 billion posted at year-end 2011, despite underwriting and operating results deteriorating sharply.

• Overall profitability measures remained relatively low, with after-tax return on equity at 1.2 percent for the industry, down from 4 percent for the same period of 2010.