The combined ratio for the US property and casualty industry is expected to climb to 107.5% for 2011 as natural catastrophes and poor investment returns wreak havoc on financial performance.

In a report on the industry’s financial results, ratings agency AM Best says catastrophe losses more than doubled last year to $US44.1 billion ($41.13 billion) from $US19.6 billion ($18.28 billion) in 2010.

It says insurance losses from a string of US natural catastrophes were particularly high because many of the US events were not bad enough to trigger reinsurance and insurers had to wear the damage.

The one bright spot was the 3.5% increase in net premiums written to $US442 billion ($412.56 billion), which was attributed to “improved underwriting and pricing discipline”.

Despite the improved premium income, AM Best says a hard market “is likely a year or two away”.

“While the industry’s operating performance is expected to improve in 2012, insurers still face a challenging environment with relatively weak underwriting results and lacklustre investment returns expected to influence operating results over the next year,” the ratings agency said.

It has maintained a stable outlook for the personal lines and reinsurance markets.

However, commercial lines received a negative outlook because of the slow rate of premium increases, the inadequate rates in some areas, as well as decreasing reserve adequacy levels and the US’s “sluggish economic recovery”.

The worst results were reported in the commercial multi-peril lines which rose to 117.1% from 100.2% while the fire and allied ratio rose to 103.2% from 82.5%.

The combined ratio for workers’ compensation remained high, increasing to 118.5% from 116.8%.

The reinsurance industry reported $US1 billion ($925 million) in underwriting losses and its combined ratio rose to 103.4% from 94.5% in 2010.

Net premiums in the reinsurance sector increased by 8.5% to $US26 billion ($24.26 billion) but net income declined to $US9.7 billion ($9.05 billion) from $US10.3 billion ($9.61 billion).

The reinsurance sector’s results have been underpinned by better than expected rise in net investment income of 26.4%, compared with the property and casualty industry’s relatively paltry 3.9%.