North American property/casualty insurers and reinsurers' operating earnings in 2016 dropped to their lowest level since 2011 due to underwriting deterioration, higher catastrophe losses and low investment yields, Fitch Ratings Inc. said Wednesday.

Chicago-based Fitch said that a review of 2016 GAAP results of a group of 43 property/casualty insurers and reinsurers shows a decline in aggregate operating return on average equity to 6.6% in 2016, down from the 7.4% return generated in the previous year.

Aggregate operating earnings declined in 2016 to the lowest level since 2011, Fitch said, when the industry faced significant global catastrophe losses.

Generating an operating ROAE above 10% remains a challenge in the current marketplace, Fitch said, as only 10 companies in the aggregate group reported a full-year 2016 double digit operating ROAE. 

"Specialty insurers were the only group to report material improvement in ROAE," Christopher Grimes, director at Fitch, said in a statement. "Personal lines and reinsurance produced the strongest operating returns amongst insurers over the last five years; however, reinsurers reported the weakest net premium growth due to pricing competition.” 

Fitch said the aggregate group calendar-year combined ratio increased by 2.2 percentage points to 96.7% as the industry experienced increased catastrophe loss activity and reduced benefits derived from favorable prior-year reserve development.

Insured catastrophe losses increased by over 50% in 2016 to about $12.6 billion, while prior-period loss reserve releases, excluding American International Group. Inc. results, declined by 17% in 2016 to $7.9 billion.

"Going forward, P/C industry favorable reserve development is likely to diminish," Mr. Grimes said. 

Shareholders' equity grew by 6.4% for the group in 2016, Fitch said, as $46 billion of net earnings and $22 billion of unrealized investment gains were experienced across the group of companies. 

Capital returns to shareholders, excluding AIG, declined modestly from the prior year to about $18 billion, down from $20 billion in 2015.

Fitch said it maintains a stable outlook for the commercial, personal and reinsurance sectors. Broad-based rating changes are unlikely in the next 12 to 24 months, but Fitch said it has a negative outlook for each of the three segments as the industry is at a point in the market underwriting cycle at which near-term conditions and profitability are likely to worsen further before any changes in collective underwriting and pricing behavior materializes.