The U.S. property and casualty insurance industry reported strong results in 2007 that nevertheless fell short of the record net profits and underwriting performance of 2006, Fitch said.

For the second consecutive year, underwriting results benefited from benign natural catastrophe activity and positive loss reserve development that combined to partially offset the adverse impact of a deteriorating insurance pricing environment.

While competitive factors are likely to promote further deterioration in rates, Fitch expects insurers to post a more modest underwriting profit in 2008. Fitch anticipates that insurers' overall profits will decline in 2008, and that the industry will struggle to produce an adequate return on capital, which Fitch estimates for most (re)insurers as a net return on average equity of between 11%-12%.

Fitch has compiled GAAP earnings release and 10-K filing data from publicly traded property/casualty insurers in our debt rating universe, as well as several other insurance organizations of interest, to evaluate full-year 2007 performance.

Net income for this group of 50 property/casualty organizations declined by 10.2% in 2007. The net income return on equity for Fitch's universe dropped to 13.2% in 2007 from 16.3% in 2006, which still represents an acceptable rate of return on capital, in Fitch's view.