Other 2011 events that hit reinsurers hard include the March 11 Japan earthquake and tsunami, with insured losses estimated at over $30 billion, and the February New Zealand earthquake, with an estimated $10 billion in insured losses, along with a series of flood events in Australia and Thailand.

The result of these events will be double-digit increases on property-catastrophe reinsurance risks, Fitch says, which will add to the 5 to 15 percent increases in 2011.

The losses point to “positive premium rate movements” that is “in the early stages,” says Fitch.

In 2012, reduced losses and healthier premium growth could produce a return on surplus on 5.4 percent compared to 2.7 percent in 2011.

However, Fitch warns that “shock events” such as a large catastrophe loss or decline in investments that leads to a reduction in capital and affects the ability to absorb large losses “could lead to a shift in rating outlook to negative.”

Fitch notes that commercial lines are more vulnerable to a negative outlook than personal lines because of recent pricing trends where personal lines are experiencing increases.

Commercial-line rates are described as “firmly inadequate” by Fitch in relation to accident-year losses, however, “the extent of capital destruction required to shift market behavior toward the next hard market is unclear.”

During a conference call today, James Auden, managing director for property and casualty insurance for Fitch, says the question remains if the pricing momentum will be sustainable in the future “and return to the level of underwriting profitability achieved in the mid-2000s.”

He says economic factors and price competition between carriers have the greatest influence on the P&C market cycle. The industry's capital level remains strong, and the industry is not experiencing a withdrawal of capacity that would come from any significant mergers and acquisitions or insolvencies.

“As such, Fitch's expectation is that the market will gain some near-term benefit from rate increases, but a return to a true hard market is less likely,” says Auden.

In this environment, he says the industry is expected to produce mid-single digit returns on capital for the next few years.