Unusually high catastrophe losses undermined otherwise improving financial trends for the U.S. property/casualty industry in the first half of the year, a new report finds.

The Property/Casualty Insurers’ Midyear 2010 Results Review from New York-based Fitch Ratings says natural disasters dampened underwriting results combined with the deteriorating pricing environment to more than offset a slight rebound in investment income.

“While the industry’s aggregate combined ratio of 97.1% for the first six months of 2010 remains solid from a historical perspective, Fitch notes that the combined ratio for the current accident year exceeded 100% for the first half of 2010, which suggests that underwriting margins will shrink further if the benefit of loss reserves decreases as Fitch expects,” the report states.

While global reinsurers suffered the primary insured losses from events such as the Chilean earthquake and Deepwater Horizon disaster, property/casualty insurers were primarily impacted by an aggregate of lesser disasters, the report finds. “Smaller inland wind and hail events in the U.S. were the continued largest source of catastrophe losses for domestic primary insurers in Fitch’s universe, particularly for regional insurers, and multi-line insurers with homeowners’ insurance exposures.”

Indeed, Fitch says regional insurers are particularly vulnerable absent a future shift in pricing trends.

“Regional insurers lack scale versus larger national writers, a disadvantage that is exacerbated during periods of soft pricing, and places even greater importance on sound underwriting performance,” the report states. “This is especially true in the current low interest rate environment that is dampening investment income for all insurers.”

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