Moody’s says the third-quarter drop is due largely to catastrophe losses, but points out that the companies collectively did manage to report a net profit.

“Net income was down nearly 70 percent in [3Q 2011] versus [3Q 2010], again reflecting catastrophe losses as well as small realized-capital losses,” the Moody’s report states. “Investment-market volatility during the quarter led to a downturn in some insurers’ investment performance, particularly stocks, as the S&P 500 declined by 14 percent.”

Moody’s says the decline in investments reflects the low-interest-rate environment.

In a bit of good news for the industry in 3Q, Moody’s says increased exposures and stabilizing rates drove a 7 percent increase in net-premiums written for the period compared to 2010’s third quarter: “According to pricing surveys and conference calls, pricing continued to stabilize this quarter with most commercial-lines insurers reporting flat or slightly increased rates, depending on the line of business.”

The rating agency adds that the excess-and-surplus business appears to be moving back to the E&S market as well. In October, at the National Association of Professional Surplus Lines Offices’ annual conference, E&S executives said this is the sign they have been looking for before buying into the idea that the market is turning.

For personal lines, Moody’s says rates continue to increase as they have for the past two years—and that it expects modest premium growth to continue as companies seek further rate increases.

This year’s third quarter showed continued reserve releases by P&C insurers, but at a lower rate than in 2010, according to Moody’s. “Our preliminary aggregate industry-reserve analysis suggests U.S. reserves remain modestly redundant across the industry, with larger redundancies in personal auto and medical-professional liability,” the Special Comment notes.

Standard commercial lines remain slightly redundant, the agency adds, but some lines such as workers’ compensation and general liability have seen deficiencies in recent years.

In its nine-month report, Fitch also points to the declining benefit seen in industry reserve releases. The overall reserve-release impact through 2011 so far has been 2.8 points trimmed from the industry’s aggregate combined ratio, compared to 3.5 points in the first nine months of 2010.

Fitch says the vast majority of underwriters in its group continued to report favorable development, but the rating agency cites Hartford Financial Services Group and HCC Insurance Holdings as two notable exceptions that saw unfavorable reserve development.

Underwriting results have taken a significant hit in the first nine months of 2011 for the companies Fitch analyzed. The group posted an aggregate combined ratio of 105.3 over this time period, compared to 96 a year ago. Fitch adds that 32 of the 47 companies posted underwriting losses for the year’s first nine months, compared to 15 companies in 2010.

“These lackluster underwriting results led to anemic profitability for most GAAP filers,” says Fitch.

Catastrophe losses are partly to blame, with losses for the group more than doubling to $28 billion for the first nine months this year compared to last year. Additionally, realized investment gains are lower, totaling $4.2 billion in the current year so far compared to $5.9 billion in the first nine months of 2010.

Specialty-commercial insurers have seen the best results of commercial-lines subsegments over the first nine months, which Fitch says is a trend that has continued over the past several years: “The group’s aggregate combined ratio rose by 5.9 points to 98.1, but was still the only segment in Fitch’s analysis to produce an underwriting profit.”

The segment benefited from favorable loss-reserve development, which trimmed 5.9 points from the aggregate combined ratio—but that favorable development is down from the 6.4 points trimmed in the first nine months of 2010.

For personal lines, the aggregate combined ratio jumped from 95.7 to 102.4 as the sector was hit by Hurricane Irene on the U.S. East Coast and heavy U.S. tornado activity and winter-storm losses earlier in the year.

Commercial-diversified insurers’ combined ratio is 104.6 for the year so far, compared to 96.6 at this time last year. Fitch said only two insurers in its group for this sector—ACE Ltd. and Hartford—produced accident-year combined ratios under 100.

Reinsurers in Fitch’s group saw their aggregate combined ratio climb to 117.3 in the first nine months of the year, up from 93.1 a year ago, due to first-half catastrophes such as earthquakes in New Zealand and Japan, Australian floods, and U.S. storms. Reinsurers did report a third-quarter underwriting profit, Fitch said, as Hurricane Irene losses centered more toward primary writers.

A separate survey of reinsurers’ statutory underwriting results by the RAA reveals that the combined ratio for a group of 19 U.S. reinsurers during the first nine months of 2011 was an unprofitable 108.8. The group’s combined ratio during the same period in 2010 was 96.6.

Policyholder surplus after nine months this year is down to $104.9 billion, from $107.5 billion a year ago, the RAA says.

Net premiums were up to $20.5 billion, compared to $18.3 billion in 2010 after nine months.

Swiss Reinsurance America Corp. reported a net underwriting gain of $71.7 million; Berkshire Hathaway’s General Re Group posted a gain of $44.9 million; Toa Reinsurance Co. of America netted nearly $4 million; and SCOR U.S. Group/SCOR recorded an underwriting gain of $255,000.

Berkshire’s National Indemnity Co. posted the largest net underwriting loss, $840 million, after nine months. However, National Indemnity posted, by far, the largest net income during the same time—nearly $3.4 billion—which accounts for much of the reason why the group’s total net income was $4.4 billion, down from $6.3 billion a year ago.

The largest net income loss ($98 million) during the first nine months for the group was recorded by American Agricultural Insurance Co., which also recorded a net underwriting loss of $123.4 million and a combined ratio of 145.2—which also led the group after nine months.

Pointing to P&C trends over the year so far, Fitch says capital generation is at a standstill, loss-reserve releases are moderating, catastrophe losses are compounding and there has been a sharp drop in return on capital. However, Fitch notes that signs of a pricing shift have materialized.

Fitch believes this price reaction is well overdue, “but it remains unclear if momentum will hold for further pricing improvement that is necessary to return the broader market to adequate return on capital levels.”

Moody’s adds in its Special Comment that while 2011 will be remembered for significant catastrophes, it may also be remembered for the industry reaching an inflection point for pricing after multiple years of declines. “The recent stabilization in pricing and relatively benign loss costs should help stem deterioration in future underwriting performance as the premiums are earned,” Moody’s says. “However, P&C insurers face headwinds from weak underwriting margins year-to-date, low investment yields and sluggish economic growth.”

Moody’s believes these challenges should help fuel further price increases for P&C insurers.