The industry's income over the first half of 2004, they said, is the most of any six-month period, both before and after adjusting for inflation, since the ISO began keeping quarterly records in 1986. The surplus for the first half of 2004 would also have set a new record, but after adjusting for inflation it remains 4.7 percent below the peak levels of June 30, 1998.

"Strong underwriting results drove the increases in net income and surplus, with insurers earning $9 billion in net gains on underwriting in first-half 2004. Prior to 2004, insurers suffered net losses on underwriting during the first half of every year since at least 1986, when our quarterly records begin," said John Kollar, ISO vice president for consulting and research.

"The combined ratio," Mr. Kollar added, "improved 5.4 percentage points to 94.4 percent in first-half 2004 from 99.8 percent in first-half 2003."

The combined ratio for the first half of 2004, Mr. Kollar added, was the best in at least 19 years and almost two percentage points better than the best full-year combined ratio since the ISO began keeping annual records in 1959.

Roger Kenney, assistant vice president of research for PCI, said that investment income also played an important factor in the industry's increased profits.

"Increases in investment income and realized capital gains also contributed to the growth in insurers' net income and surplus," he said. "Net investment income?primarily dividends from stocks and interest on bonds?grew 4.1 percent to $19 billion in six-months 2004 from $18.3 billion in six-months 2003. And insurers realized $5 billion in capital gains on investments in first-half 2004, up from $4.5 billion in first-half 2003."

However, Mr. Kenney noted that the insurance industry is a cyclical one, and there are already indications that increased competition is softening the market.

"The Council of Insurance Agents and Brokers second-quarter 2004 rate survey indicates commercial insurance prices fell an average of 3.2 percent for all sizes of accounts," he said.

"Other indicators pointing to softening in insurance markets include the spread between written premium growth and GDP growth. That spread has turned negative, with premium growth in the first half of 2004 falling 2.4 percentage points short of the 6.9 percent increase in GDP versus year-ago levels," he said.

The industry's profitability also rests on several other factors, Mr. Kenny noted.

"Catastrophe losses are another wildcard that threaten to undermine underwriting results going forward," he said, adding that the ISO's property claims unit has already reported $17.2 billion in direct losses from hurricanes during the third quarter.