The U.S. P&C insurance industry saw its net income aftertaxes fall to just under $8 billion for January through September2011—compared to net income of just over $27 billion for the sameperiod in 2010, according to a report by ISO, the Property CasualtyInsurers Association of America (PCI) and the Insurance InformationInstitute (I.I.I.).

“The [P&C] insurance industryturned in a relatively weak performance during the first ninemonths,” I.I.I. President Robert Hartwig said in a commentary onthe results.

“Although profitability slumped amid high catastrophe losses,premium growth is accelerating, investment earnings were morerobust than anticipated, and policyholders’ surplus declined onlymodestly from its all-time record high,” he added.

Net losses on underwriting for the time period were $34.9billion, up from $6.3 billion for the first nine months of 2010.Losses in 2011 were driven by $33.2 billion in net losses and lossadjustment expenses (LLAE) from catastrophes. That figure was $10.8billion for the first nine months of 2010.

The industry’s combined ratio climbed to 109.9 in the first ninemonths of 2011, compared to 101.2 in 2010.

Michael R. Murray, ISO’s assistant vice president for financialanalysis, said in a statement that the combined ratio is “the worstnine-month underwriting result since the 114.4 combined ratio fornine-months 2001.”

He noted that the bad news in 2011 wasn’t due only tocatastrophes: “Even after adjusting for catastrophe losses, thelatest data indicates that insurers continued to face headwinds intheir core business—underwriting. ISO estimates that insurers’combined ratio would have risen 1.7 points to 102.9 percent innine-months 2011 if net LLAE from catastrophes had remained thesame as they were in nine-months 2010.”

Murray added, “The deterioration in adjusted underwritingresults is cause for concern because today’s low interest ratesseverely limit insurers’ ability to generate incremental investmentincome.”

Insurers saw a 3.5 percent increase in investment income throughthe first nine months of 2011, bringing it up to $36.5 billion, butRobert Gordon, PCI senior vice president for policy development andresearch, said in a statement, “The growth in insurers’ investmentincome in nine-months 2011 resulted from a $2 billion increase inthe dividends that one insurer received from a major non-insuranceoperation acquired in early 2010.”

Excluding that $2 billion, insurers’ net investment incomedeclined by $0.8 billion, or 2.2 percent, to $34.5 billion innine-months 2011 as a consequence of low interest rates anddeclines in investment-income yields, he added.

Policyholders’ surplus decreased to $538.6 billion for the firstnine months, down from $559.2 billion at year-end 2010, but Hartwigpointed out that surplus still exceeds the pre-financial-crisishigh of $521.8 billion set in 2007’s third quarter.

“One outstanding question is whether the decline insurplus during the second and third quarters are a transientoccurrence, caused chiefly by surging catastrophe losses, orwhether it is the beginning of a sequence of declines wherebyexcess capital is expunged from [P&C] insurer balance sheets ascore (non-cat) underwriting losses mount and the ability to releaseprior-year reserves into the earnings stream diminishes,” saidHartwig.

Putting the nine-month results into perspective, Gordon said,“Despite massive net losses on underwriting, insurers emerged fromnine-months 2011 strong, well-capitalized and capable of payingfuture claims.”

“Fundamentally, the [P&C] insurance industry remains quitestrong financially, with capital-adequacy ratios remaining highrelative to long-term historical averages,” Hartwig added.