A new report by A.M. Best says that capitalization declined for the property/casualty industry partly due to weaker investment results and underwriting losses. Life insurers opted to preserve or rebuild capital to maintain their financial strength while "de-risking" their product portfolios.

A.M. Best found that storm losses and higher incurred claims drove the P/C industry to a net underwriting loss of about $238 million in 2008, while the combined ratio deteriorated to 101.1, up from 93.2.

Auto insurers` 2008 net loss ratio rose to 76.9 from 70.8, mostly driven by rising medical cost inflation and increased claims severity in Ontario auto’s personal accident business line.

The personal property net loss ratio deteriorated to 75.8 from 66.7 as loss activity increased with summer and winter storms.

A.M. Best Co. anticipates continued challenges for the P/C industry, especially in Ontario auto, personal property and overall investment results. However, the industry should remain profitable and well capitalized overall.

In the life insurance industry, A.M. Best said that premium growth for Canadian life insurers was a modest 3 percent in 2008, reflecting the market`s maturity and the impact of the global economic slowdown. Canadian life companies may face earnings pressure from guarantees offered on segregated fund products that may not have been priced relative to their risk.