The US property/casualty insurance industry has achieved its second-best combined ratio in the past four decades, despite a deteriorating underwriting performance.

The industry’s combined ratio for last year lifted 3.2 percentage points to 95.6% as net underwriting gains fell 38.9% to $US19 billion ($20.4 billion), according to figures released by the Insurance Services Office and the Property Casualty Insurers Association of America.

Overall net income after taxes declined 5.8% to $US61.9 billion ($66.5 billion), but net investment gains were up 4% to $US63.6 billion ($68.2 billion).

Commenting on the results, Insurance Information Institute President Robert Hartwig says investments and reserve releases are propping up profits.

“Deteriorating underwriting performance, primarily the result of increasing price competition, will likely lead to a greater share of earnings coming from investment gains going forward – a shift that has already clearly begun,” Dr Hartwig said.

“Insurer underwriting performance and profits were also aided by reserves releases, which knocked one to two points off the combined ratio for many insurers.”

Dr Hartwig highlights the 0.6% decline in net written premium to $US440.8 billion ($472.4 billion) – the first on record – as a “major cause for concern”, along with the “rapid accumulation of capital on insurer balance sheets”.

While net earned premium lifted by 0.8% to $US439.1 billion ($470.6 billion), this represented a 3.5 percentage point decline in growth from the previous year.

Dr Hartwig says recent consolidation activity suggests the pace of consolidation could accelerate in 2008.