OLDWICK, N.J.—The U.S. property/casualty insurance industry’s profits for 2008 will drop nearly 80% to $14 billion, according to an estimate released Monday by A.M. Best Co. Inc.

Slumping underwriting results and weak investment markets hindered U.S. property/casualty insurers to a “critical point,” where future profitability will depend on tight underwriting and sound enterprise risk management, Best said.

Oldwick, N.J.-based Best projects 2008 net written premiums for the commercial property/casualty industry to drop to $449.7 billion from $453.4 billion in 2007, which was down from $457.3 billion in 2006. It is the first time since 1932-1933 that net written premiums have had back-to-back decreases, Best said.

Best also predicts that the industry’s combined ratio for 2008 will be 104.7% compared with 92.4% in 2007. The estimated 2008 combined ratio would be the highest since 2002’s 107.2%.

Furthermore, after two years of underwriting profits, Best expects 2008 to produce an underwriting loss of $21.5 billion. Best attributed the erosion to the soft market, weather-related losses and insurer losses in the mortgage and financial guaranty sectors.

Policyholders’ surplus for the industry is expected to decline 10% to $485.3 billion in 2008, Best said. Though, the rating agency said the industry is still “capitalized sufficiently.”

In its report, Best indicated that the commercial property/casualty and reinsurance markets will remain stable in 2009, but noted that several issues, including the prospects for federal regulation, catastrophe losses and volatility in the credit and investment markets, will play a role in how insurers will develop their business plans.

Copyright © 2009 Crain Communications, Inc.