For Mr. Watson, "getting out of things that we decided we were not quite good at," or those areas that didn't promise to "generate an acceptable profit over an underwriting cycle," has been a key strategy.

To give some idea of the critical importance of having a sound growth strategy, Mr. Watson noted that last year 85 percent of the business was from either start-ups or acquisitions. California workers' comp made way for a string of E&S acquisitions, beginning in 2001 with the purchase of Richmond, Va.-based Colony, helping the company show impressive gains in 2005.

Over the past five years, Argonaut's total assets have more than doubled--from $1.6 billion to $3.4 billion--while gross written premium jumped 43 percent.

Mr. Watson said the company's target markets remains small and midsized businesses, and specific industries such as grocers. "We like to partner up with our insureds and help them manage their risk."

Mistakes cost money, but at this point Mr. Watson remains comfortable with his reserving in light of legacy obligations from California workers' comp, asbestos and environmental liability.

For full-year 2005, the San Antonio-based company reported that gross premiums topped $1 billion for the first time, along with net income of $80.5 million--a 12 percent increase over 2004.

Last year was also record-breaking for Houston-based HCC Holdings. Chairman and founder Stephen Way said it was the best year in the company's history despite $57.5 million in hurricane losses. "In 2005, we still achieved a 15 percent return-on-equity and grew shareholders equity by 28 percent," he noted.

While last year's catastrophes have had some companies loading up on reinsurance, HCC has taken the opposite tack by increasing retained risk, which has been one of the factors in the 36 percent increase in net earned premium to $1.4 billion last year.

Bank of America analyst Brian Meredith said HCC's better-than-expected underwriting results and lower-than-expected operating expenses helped it report net operating income of 57 cents per share-- 12 cents higher than his estimate of 45 cents.

Specialty premiums rose 46 percent in fourth-quarter 2005. HCC expects this area "to continue to see good growth in 2006 due to the Illium deal" (see below) and other investments in 2006, Mr. Meredith noted.

Last October, HCC announced the acquisition of Illium Insurance Group Ltd.--a London-based entity that owns a Lloyd's managing agency running Syndicate 4040, specializing in U.K. third-party and employers' liability. At the time, Mr. Way called the deal "a planned increase in our London market presence, and one which provides a Lloyd's platform with licenses to facilitate expansion of our international operations outside of the United States and Europe."

Mr. Meredith noted that the company's increased retained risk could prompt some earnings volatility, and will lead to flattening of gross premiums as the company becomes choosier about the risk it takes on.

At Peoria, Ill.-based RLI Corp., CEO Jonathan Michael also highlighted his company's "nimbleness" as he reviewed record 2005 profits in 2005 of $107 million, compared to $73 million in 2004--along with a 21.6 percent return on equity and 86 combined ratio.

"Part of the resiliency of RLI's business plan is that we have the ability to enter lines of business that look promising, as we did with RLI Marine in the second quarter of 2005," Mr. Michael said. "This nimbleness means we can also--as we sometimes have to--exit a business that is not performing up to expectations."

In 2005, that business turned out to be property construction, which contributed greatly to the property segment's $8.3 million underwriting loss for the year. A 110 combined ratio contrasted sharply with the 2004 figure of 79.2, which was also impacted by storm losses.

Surety, however, proved to be a profit center last year, two years after RLI and other carriers had to rewrite that book after some severe losses.

Mr. Michael said RLI's underwriters are reporting new business opportunities along the Gulf Coast as competitors restrict activities, but reinsurance costs are sure to rise, which will have to be factored against a more favorable pricing environment.

Columbus, Ohio-based ProCentury--still small enough that it can expect to report 10 percent growth even in a soft market--will continue to rely on a diversification strategy in 2006, according to CEO Edward Feighan.

The company raised $100 million from an initial public offering in 2004 on the tail of the hard market "that was the driving force for us to seek that capital," he said. "It gave us the opportunity for some very significant top line growth that year, about 32 percent, knowing by the end of 2004 we were starting to see a very different market."

Targeting small-to-midsized businesses, he said, "we are not the cheapest in the market, nor the most expensive. But we believe [there] is an opportunity for us to compete, grow and prosper based primarily on our ability to serve the marketplace and general agents who represent us."

Market forces helped shift some of ProCentury's book away from property in the softer market, while Mr. Feighan said that in the casualty sector, the insurer moved away from some of the longer-tail lines in the manufacturers and contractors areas, shifting its emphasis to the shorter-tail owners, landlords and tenants, as well as other more premises-based covers.

"We don't have an appetite for cat coverage. We do, however, rely on having a much-diversified book of business," he said.