The industry may also take some comfort from the fact that the rate of return was impacted by severely negative numbers posted by mortgage and financial-guaranty carriers. Excluding those insurers, the rate of return was actually 3 percent. But that was still down considerably from the 7.8 percent posted in 2010—again, no cause for bragging.

Under these conditions, it’s no wonder policyholder surplus was drained a bit, falling $20.6 billion (3.7 percent) from year-end 2010 to a still hefty $538.6 billion after nine months last year. The industry likely remains overcapitalized given the slow growth in insurable exposures, but the big question is what insurers will do with that excess capacity.

The good news (at least for sellers, but not buyers of insurance) is that higher prices in both commercial and personal lines for many accounts boosted net-written premiums by 3.1 percent over the first nine months of 2011—the highest growth rate posted since 2006. It certainly beat 2010’s 1.2 percent gain and 2009’s 4.6 percent decline.

In addition, after excluding those nasty mortgage and financial-guaranty results once again, those writing primarily commercial lines saw premium volume rise by 3.9 percent, compared to a decline of 1.9 percent the previous year.

However, temper that with the news that those primarily writing personal lines saw growth slow a bit to 3.1 percent, down from 3.6 percent in 2010. And keep in mind that even without the effects of catastrophes, insured losses and loss-adjustment expenses were up 5.1 percent—which means the industry overall is still losing ground.

So where does that leave the P&C industry going into 2012? That depends on a number of factors:

• Is the nine-month surplus decline indicative of the P&C industry consciously burning through excess capital, or is it just the result of a bad year of cat losses?
• Will insurers have the underwriting discipline to walk away from underpriced risks, or will they seek greater market share by competing more aggressively on price, undermining the staying power of what has been a firming commercial and personal-lines market?
• Will insurers raise prices high enough to make up for rising losses and weaker bond yields, so they can produce a decent rate of return for a change?

Of course, all bets are off if the fragile U.S. economic recovery stalls thanks to the crises in the Eurozone, a petering-out of federal stimulus funds, cuts in state-government spending, a lingering housing-market slump, federal-government paralysis in this election year, or any combination of these and other factors yet to emerge.

The other major question will be what happens with cat losses in 2012. Last year may have been unusual in terms of disaster losses, but then again, given the speculation about climate change, might this be the “new normal” for insurers?

And even though disaster claims soared last year, outside of Hurricane Irene, we didn’t have a monster storm slam into the U.S. mainland. If one should hit Florida or the Gulf Coast (or even New York—Irene was way too close a call for someone like me, living near Brooklyn’s beaches), industry surplus could be drained in a hurry.

The top insurance company CEOs and heads of the major associations recently came together for their annual family reunion—better known as the P&C Joint Industry Forum—and it will be interesting to hear what was on their minds when reports from what was discussed at the event start to appear.

Most likely, it will be anything but business as usual for insurers in 2012: They’ll have to cope with the threat of mounting cat exposures, declining bond-investment returns and an uncertain economic recovery.

And a Happy New Year to you, too!