Although challenges remain for the property/casualty industry in 2010, the key financial ratios used to monitor U.S. property/casualty insurers will recover significantly in 2009 given improving investment returns and relatively few catastrophe losses during the past year, reports New York-based Moody’s Investors Service.

Moody’s released its report, “Deterioration in U.S. P&C Insurance Seen in Key Financial Ratios,” this week.

The recovery seen by the industry in 2009 “follows a very poor year in 2008, and it occurred in spite of a weak pricing environment for all insurance products,” Moody’s said in a statement.

The investment firm partially explained the 2009-2010 market by drawing reference to the weather.

“Given the recovery in investment markets that took place during 2009, and a relatively low level of losses from natural catastrophes such as hurricanes, we expect a substantial improvement in many of the financial ratios that we use to assess the credit strength of the P&C insurance industry,” Moody's analysts led by Paul Bauer said in a statement.

In light of the fragile state of the economy and capital markets, added Moody’s, there is slim indication of a pricing cycle turn, so declines in revenue are still likely, and investment volatility remains high.

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