US property and casualty insurers are expected to report significantly improved profits this year, but weak investment returns and long-tail losses will put pressure on results, AM Best says.

The ratings agency forecasts a total profit of $US37.5 billion ($36.2 billion) for the industry this year, thanks to improved underwriting results and realised gains offsetting lower investment income.

It says this is still below the $US40 billion ($38.6 billion) average of the previous five years.

“Over the past nine years, the industry has posted higher underwriting losses only in 2005 and 2011,” the agency says. “To the extent that continuing weakness in investment markets results in lower investment income, only improved underwriting results will be available to maintain growth in earnings.”

AM Best says investment income has more than offset underwriting losses in recent years but has begun to slow amid low interest rates and companies buying back securities because they can get significantly lower rates on new issues.

It expects net investment income for 2012 will be lower than in 2011.

The agency says insurers have achieved solid growth in premiums and much lower catastrophe losses but pressure will come not only from lower investment yields, but also accumulated loss-reserve deficiencies in long-tail lines.