SEE SLIDESHOW: From Underwriting Results to Reserve Release, ALIRT Charts Wrap Up 2011

The index hit its lowest trend point in 1999 through 2001 prior to the hard market turn.

While insurers are off their peak of 2006-2007, the current stress point is just below average.

“We will likely need to see composite scores needle further downward before enough financial 'pain' exists in the industry to push prices appreciably higher,” ALIRT says.

Among some of the financial indicators that did not perform well in 2011 for the P&C insurance industry, according to ALIRT's analysis, composite surplus fell 2.2 percent. This was due to large catastrophe losses during the year, the firm notes. Also contributing to the fall in surplus was $13 billion in shareholder dividends and $1.8 billion in “other miscellaneous adverse impacts to capital.”

The combined ratio for 2011 was 107.1, a 4.5 percentage point deterioration from the previous year, primarily due to catastrophe losses, but helped by $5.5 billion of prior year reserve releases.

Pretax operating income declined by over 60 percent to more than $8 billion “reflecting the industry's weakening underwriting results and lower investment income.

On the positive side, direct and net premiums rose 2.3 percent and 3.5 percent respectively, indicating “the slow emergence” from the seven year-old soft market, says ALIRT.

The firm says insurance rate increases “have been slow and gradual” representing a forward trend in pricing. However, the insurance market is in a transitional phase at this point and once prices readjust they could flatten out.

What is missing for a hard market turn, argues ALIRT “is diminished capacity—both in terms of capital and willingness to compete—woefully deficient reserve positions, and poor earnings metrics” adding that the “current environment does not argue for a hard turn in pricing.”

ALIRT notes that while industry profitability was substantially lower in 2011 than it had been over the past eight years, the drop was attributable to the above average catastrophe losses.

ALIRT says “in the near term—should composite catastrophe losses revert to their median level over the past 13 years—we could see improvement in profitability in 2012.”

ALIRT also says that the improved economy may be contributing to the increase in net written premium and that instead of a hard market cycle pricing prices “may simply be correcting.”

“Add to this mix other collateral factors such as business owners pushing back on rate increases in a still difficult economic environment, benign inflation, and what appears to be a general skepticism among brokers of an approaching hard turn, and it is difficult to see what will propel pricing sharply higher,” says ALIRT.