What a difference a year makes. After the U.S. P&C industry took it on the chin in Q1 of 2009 to the tune of a $0.9 billion dollar loss, insurers rebounded nicely in 2010. According to a report released to by A.M. Best Co. Inc., P&C insurers benefited from the continued recovery in the financial markets to post an after-tax net profit of $11.5 billion in Q1 2010.

The improvement, the report says, was largely driven by the industry reporting $2.9 billion in realized capital gains in Q1 2010, compared to $7.9 billion in realized capital losses during Q1 2009.

The report goes on to note that U.S. P&C industry’s net premiums written declined for a 10th consecutive quarter, falling 1.2% to $105.8 billion through Q1 2010. A.M. Best believes sustained competitive market conditions in most commercial lines, weak exposure growth, excess capacity and growth in alternative forms of risk transfer accounted for the drop.

The P&C industry’s combined ratio improved by 1.2 points to 101.0 in the first three months of 2010, which reflects favorable reserve development on prior accident years, and significant but reduced losses in the mortgage and financial guaranty segments, the report says.

Additionally, policyholders’ surplus rose by 24.4% to $545.5 billion for the 12 months ended March 31, 2010, thanks to improved underwriting and investment results, along with a significant capital contribution in the U.S. reinsurance segment, A.M. Best found. Also, overall profitability measures improved, with the industry’s after-tax return on equity at 2.3% for the 12 months ended March 31, 2010, up from -0.2% for the 12 months ended March 31, 2009.