NU Online News Service, March 15, 11:09 a.m.EDT

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Until another significant event occurs to take a large bite outof industry capital or underwriting capacity, a true hard marketwill remain elusive, says Fitch Ratings.

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In a report on property and casualty insurers' year-endfinancial results, Fitch says it believes a “meaningful removal” ofcapital is needed “before insurance pricing can move to levelscorresponding with the strong accident-year returns in the middleof the last decade.”

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“Generating an operating return on equity (ROE) above 10 percentremains a challenge in the current marketplace,” Fitch adds.

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Operating ROE in 2011 was 4.4 percent compared to 7.5 percent in2010.

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The rating agency, which based its report off thefull-year results of 47 publicly traded insurers and reinsurers,says that “questions remain on the sustainability” of recentfavorable pricing momentum.

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Currently, market segments hit hardest by recent catastrophesare seeing the most price improvements, such as propertyreinsurance, primary commercial property, homeowners incatastrophe-affected areas, and workers' compensation.

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The group of 47 companies experienced a 35 percent decline innet income in 2011, according to Fitch. Without the earnings ofAmerican International Group Inc. and Berkshire Hathaway, thedecline was 60 percent.

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Profits in 2011 were still augmented by favorableprior-year reserve development, as large catastrophe-related lossesin 2011 from events in Japan, Thailand, New Zealand, Australia andthe United States were $30.8 billion—more than 11 percent of $274billion in earned premiums last year.

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Reserve redundancies reduced the group's loss ratio by 3.3points, compared to 2.5 points in 2010, reportsFitch.

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Of all industry segments within the companies followed in thereport, the combined ratio was highest from a group of 13reinsurers. The ratio was up 23.6 points to 115.5 in 2011.Reinsurers posted a $1.7 billion operating loss in 2011 compared toa gain of $4.5 billion in 2010.

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Personal lines insurers saw operating income drop 35 percent in2011 to $1.9 billion, says Fitch. This group of six companiesreported an aggregate combined ratio of 99.9 in 2011, which was 3.4points higher than 2010.

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Results for specialty commercial insurers were the best in theFitch report. Seven of 12 specialty insurers included in the reportposted a combined ratio below 100 in 2011. The group's aggregatecombined ratio was 95.7 in 2011, up from 91.5 in 2010. Operatingresults decline 37 percent to $1.6 billion. Four companies(American Financial Group, Assurant, HCC Holdings and RLI Corp.)reported underwriting profit.

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