The US property and casualty insurance industry watched profit plunge 77% during the first nine months of the year, according to a report by Fitch Ratings.

The ratings agency attributed the poor aggregate result to falling investment results, above average catastrophe losses and deteriorating underwriting income.

Fitch included 52 insurance companies in its study of the US industry. AIG was excluded after chalking up a $US24.5 billion ($38.4 billion) third-quarter loss.

The report reveals an aggregate combined ratio of 97.7%, reflecting a modest underwriting profit.

Earnings are not expected to rebound significantly during the final quarter, even though declining capital is forecast to alleviate downward pressure on rates.

“Operating profits are expected only to improve moderately in 2009 if catastrophe losses are similar to historical averages as core underwriting results are likely to further deteriorate and loss reserve redundancies diminish,” it said.

Fitch says insurers were relatively well insulated from subprime events but sharp declines in equity markets and the pursuit of treasury securities at the expense of corporate and tax-exempt bonds had an unavoidable effect on insurer assets.

But there is still intense competition, and that combined with the “looming economic recession” is likely to hamper premium growth in the US next year, the agency says.