The US property/casualty insurance market is enjoying its fourth consecutive year of double-digit returns on capital, says Fitch Ratings.

A special report by the ratings agency on US and Canadian general insurers says insurance is outperforming other sectors of the financial services industry due to a benign catastrophe season, reserve releases and underwriting discipline.

The industry enjoyed an overall combined ratio of 93.5%, slightly down on last year’s 92.4%, and an increase of less than 1% in net written premiums to $US445 billion  ($502 billion), down from 4.2% last year.

Incurred losses from catastrophe events amounted to 1.7% of net earned premiums, compared with 2.1% the previous year. Fitch estimates catastrophe losses will reach $US7.3 billion this year.

Unlike other areas of financial services, the market has not been affected by the subprime mortgage meltdown. But there could be a long-tail surprise in store involving potential claims under directors’ and officers’ liability policies, Fitch says.

It predicts the industry’s combined ratio will deteriorate to 98.1% next year and net written premium will increase slightly by 0.1%.

The report warns the market is likely to face declining underwriting profitability, increased catastrophe losses amounting to 3.4% of net earned premiums and a 20% fall in net income next year.