Their figures showed a collective net underwriting gain of $5 billion by the insurers, improving dramatically from their 2003 performance when the companies suffered an underwriting net loss of $4.9 billion.

This was the first time the U.S. p-c sector reported net underwriting gain since 1978. The sector's combined ratio also improved, falling to a profitable 98.1 percent last year, from 100.1 percent in 2003.

The insurers' underwriting profit last year came despite an unprecedented U.S. hurricane season and heavy catastrophe claims.

"As good as insurers' results were in 2004, they would have been even better if not for the five hurricanes in the third quarter?Charley, Gaston, Frances, Ivan and Jeanne," said Gregory Heidrich, senior vice president for policy development and research at Des Plaines, Ill.-based PCI.

According to ISO, those storms and other catastrophes caused $27.5 billion in direct insured property losses in 2004?more than double the $12.9 billion in direct losses from catastrophes in 2003. The Jersey City, N.J.-based ISO noted that if last year's catastrophe losses had stayed at the 2003 level, the sector's combined ratio would have improved to 97.3 percent.

The insurers also saw improvements in other benchmarks in 2004. The sector's net investment income?mostly stock dividends and interest on bonds?rose 2.4 percent to $39.6 billion last year, from $38.6 billion in 2003.

Insurers also realized $9.3 billion in capital gains on investments in 2004, up from $6.6 billion in 2003. The sector's surplus, or statutory net worth, rose 13.4 percent to a record $393.5 billion at year-end 2004, the highest level ever in nominal terms as well as in an inflation-adjusted scale.

But despite the sector's performance overall, ISO and PCI warned that now is not the time for insurers to celebrate. The biggest concern the two groups expressed was the softening marketplace condition which could hurt the sector's underwriting performance. ISO vice president for consulting and research John Kollar said: "Insurance is a cyclical business. Improved profitability and the growth in capacity as measured by surplus seem to have sparked increased competition that threatens to undermine underwriting results going forward."

Also reflecting developments in insurance markets, the 4.7 percent written premium growth in 2004 was the slowest pace since the 1.9 percent increase in 1999, according to ISO. In total, the sector had $423.3 billion in written premiums in 2004, up from $404.4 billion in 2003.

The two groups also reported that the sector's overall net loss and loss-adjustment expenses rose 3.8 percent to $299.5 billion in 2004. Non-catastrophe loss and loss-adjustment expenses rose 2.7 percent to $283.3 billion in 2004.

ISO and PCI are not the only groups expressing concerns about insurers' future prospects. This week, investment firm Cochran, Caronia Securities LLC issued a severe warning about the p-c sector's prospects, which the firm sees as quickly deteriorating despite the 2004 results.

The Chicago-based firm predicted in its new report that U.S. p-c insurers will see "dramatic declines in core earnings power" beginning as early as this summer and extending into 2006.

From now on, the company predicted, the industry's pricing cycles will shorten to two-to-three years instead of the usual eight-year cycles. The firm pointed to reduced ability to use finite reinsurance in the wake of current regulatory probes, heightened scrutiny by rating agencies and an emphasis on transparency as factors that will quicken the shift from pricing peak to trough.

Cochran, Caronia Securities' director of investment research Adam Klauber told National Underwriter that commercial and reinsurance sector earnings should be "materially below expectations" in 2006 and that insurers in general will show a "surprising overreliance on investment income."