The property-casualty insurance industry should once again showsolid profits this year, but there are signs that underwritinggains are beginning to deteriorate, according to the latest surveyof industry-wide results.

The figures were gathered by ISO and the Property CasualtyInsurers Association of America and are consolidated estimatesrepresenting 96 percent of all business written by private U.S. p-cinsurers.

Through the first nine months of 2007, p-c industry net incomeafter taxes rose more than 7 percent compared to the same periodfor 2006, from $46.1 billion to $49.4 billion, according to thereport.

The results, the groups said, were fueled by the industry's netincome, policyholders' surplus (the insurer's net worth measuredaccording to Statutory Accounting Principles) that increased 7percent, or $35.6 billion, to $521.8 billion.

However, the survey found some slippage in overall profitabilitymeasured by its annualized rate of return on average policyholdersurplus that fell from 13.8 percent to 13.1 percent. Net gains onunderwriting dropped 25.3 percent from $24.3 billion for the firstnine months of 2006 to $18.1 billion for the 2007 nine-monthperiod.

The combined ratio over the period worsened by 2.3, going from91.5 over the first three quarters of 2006 to 93.8 for the firstnine months of 2007.

Michael R. Murray, ISO assistant vice president for financialanalysis, pointed out that the industry's combined ratio of 93.8 isthe second best for the first nine months since 1986. However, hesaid, for insurers to reach an average rate of return of 13.9percent–the long-term average rate of return for Fortune 500companies–the p-c industry's combined ratio needed to be one pointbetter.

In his commentary on the first nine months, Robert P. Hartwig,president of the Insurance Information Institute, said the firstnine months “are generally excellent and so far have provensurprisingly resilient” in the face of the intense competition forbusiness within the industry.

If the underwriting deterioration holds true to form as in pastcycles, however, the industry's return on equity will bottom out in2011 at about 1- or 2 percent, and not become profitable againuntil 2015 or 2016.

“The most important question facing the industry today iswhether this painful and destructive cycle can be broken and withit, the commensurate surge in insurer impairments that invariablyoccur,” said Mr. Hartwig.

He said recent carriers changes from past business practices maybe making a difference, translating into “a shallower market cycle”and more modest dip in profits.

“Insurance CEOs continue to vow that it will be different thistime around, and 2008 is quickly shaping up to be the year when theindustry's fortunes will be cast,” he said.