The U.S. property/casualty (P/C) industry reported its largest underwriting loss since 2006 and saw its operating performance deteriorate sharply in 2011, as catastrophe-related losses throughout the year wreaked havoc.

Insurers were affected by an unprecedented number of natural catastrophe events in the United States and abroad in 2011, resulting in catastrophe-related losses more than doubling the total reported in 2010, according to ratings agency A.M. Best.

As a result, all three segments—personal lines, commercial lines and U.S. reinsurers—are expected to report relatively large underwriting losses, the industry’s policyholders’ surplus is anticipated to decline modestly and return measures are expected to be in the low single digits, A.M. Best said.

A.M. Best Co. estimates net premiums written increased 3.5 percent to $442.0 billion in 2011.

The industry’s combined ratio is expected to deteriorate 6.5 points to 107.5 for 2011 from 101.0 in 2010.

A.M. Best estimates total statutory pretax accident-year catastrophe-related losses were approximately $44.1 billion in 2011, up from an estimated $19.6 billion paid in 2010.

Despite the high catastrophe losses, A.M. Best estimates that the industry’s policyholders’ surplus decreased only 1.4 percent to $562.7 billion from its record year-end high of $570.4 billion reported in 2010.

While the majority of rating actions in 2011 resulted in affirmations, downgrades outnumbered upgrades for the first time since 2005.

A.M. Best has maintained a stable outlook for the personal lines and U.S. reinsurance segments in 2012.

The outlook for the commercial lines segment remains negative due to the incremental impact that rate increases will have over the next year; inadequate rates in select lines of business; decreasing reserve adequacy levels; and the sluggish economic recovery.

Looking ahead, while pricing discipline seems to be taking hold, A.M. Best said it believes a traditional “hard” market is likely at least a year or two away.

While the industry’s operating performance is expected to improve in 2012, insurers still face a challenging environment, with relatively weak underwriting results and lackluster investment returns expected to influence operating results over the next year, said A.M. Best.