‘The US property/ casualty industry is on pace to report its first year-end underwriting loss since 2005.’

As a result of deteriorating underwriting and investment results, the US property/casualty industry’s after-tax return on equity receded to 1.4% for the nine months to September 30, 2008; down from 9.5% posted during the same period the previous year.

The figures to the end of September show net premiums written fell 0.6% to $339.3bn, driven by ongoing competition and “soft” market conditions in almost all lines of business and geographic areas. Continued price softening, sizeable and frequent weather-related losses and significant losses reported by mortgage and financial guaranty insurers resulted in the overall statutory combined ratio increasing to 105.1.

Excluding the AM Best mortgage and financial guaranty composites, the US property/casualty industry posted an underwriting loss of $10.9bn and recorded a combined ratio of 102.8. The US property/casualty industry’s policyholder surplus declined $36.8bn, or 7%, while investment results continued to be pressured through the first three quarters of the year from the dislocations in the financial markets with the low interest rate environment.

The personal lines segment’s underwriting results deteriorated significantly with a reported combined ratio of 104.9, compared to 95.7 through the same period of 2007, while the commercial lines segment’s combined ratio deteriorated 13.2 percentage points to 105.4, driven partly by extensive underwriting losses for mortgage and financial guaranty insurers.

The US reinsurance segment’s combined ratio increased to 104.9, up 10.3 points from 94.6 during the same period of 2007.

With three-quarters down and one to go, the US property/casualty industry is on pace to report its first year-end underwriting loss since 2005, ending its two consecutive years of underwriting profit.

Edward Keane is a senior financial analyst at AM Best.