American property and casualty (P&C) insurers enjoyed a healthy third quarter but face insured losses of up to $US25 billion ($23.87 billion) following Hurricane Sandy, according to a Moody’s Investors Services report.

They ended the period “with strong earnings growth because of lower catastrophe losses and higher earned premium”, it says.

The effects of Sandy will be “manageable but will hurt earnings results”.

Commercial lines are likely to account for a greater share of losses than in a typical hurricane because of “the record storm surge, widespread business interruption and concentration of damage in urban areas”, Moody’s Associate Analyst Yunqin Li says.

“We expect losses to be largely retained by primary insurers, with reinsurers absorbing a smaller portion.”

Despite third-quarter catastrophe losses being significantly down on the corresponding period last year, Moody’s says rates continued to grow across all business lines, which should help credit profiles over the next year.

Net written premium for Moody’s-rated US P&C companies was $US55.5 billion ($53 billion) for the quarter, up 6% on rate rises and increased market penetration.

Rated P&C insurers’ net income grew 225% to $US5.73 billion ($5.47 billion), while the combined ratio was 96%, compared with 103% in the previous corresponding period.

“We expect some improvement in accident year loss ratios in 2012 as rate increases translate into earned premiums and loss costs remain relatively benign,” Ms Li said.

Insurers are also strengthening their finances by tightening policy terms and conditions.

Reserve releases are supporting earnings, although some insurers had to increase reserves in the quarter. Capital adequacy remains solid, despite equity growth of 4% trailing net written premium growth.

Share buybacks and dividend payments are the causes of lagging equity growth, and the US drought is causing record crop insurance losses.

Investment income grew a modest 5% to $US6 billion ($5.72 billion).