Partially offsetting the deterioration in investment results and the increase in income taxes, insurers' net gains on underwriting increased to $15.1 billion in first-half 2006 from $12.8 billion in first-half 2005.

PCI chief economist Genio Staranczak said that the 92 combined ratio in the first half was the best since quarterly records were started in 1986.

But that could not make up for declines in investment income, which dropped 3.5 percent to $24.5 billion in the first half of this year from $25.4 billion in the first half of last year.

Realized capital gains on investments (not included in net investment income) tumbled 66.4 percent to $900 million in first-half 2006 from $2.6 billion in first-half 2005. Combining net investment income and realized capital gains, overall net investment gains fell 9.3 percent to $25.4 billion through first-half 2006 from $28 billion through first-half 2005.

Michael Murray, ISO assistant vice president, said that signs abound of increased competition in non-catastrophe-exposed areas.

While stories about price increases and insurance availability problems in coastal states hammered by Hurricanes Katrina, Wilma and Rita "continue to appear almost daily," Mr. Murray noted that the countrywide Consumer Price Index for tenants' and household insurance dropped 1.5 percent in second-quarter 2006 compared to its level a year earlier.

He said the CPI for motor vehicle insurance rose a scant 0.3 percent--far less than the 4 percent increase in consumer prices overall," he said.

Also contributing to the declines in net income after taxes and overall profitability, the industry incurred $12.3 billion in federal income taxes in first-half 2006--20.3 percent more than the $10.2 billion in income taxes the industry incurred in first-half 2005.

The property-casualty insurance industry's consolidated surplus, or statutory net worth, increased 4.6 percent to $445.5 billion at June 30 from $425.8 billion at year-end 2005. The $19.7 billion increase in the industry's consolidated surplus in first-half 2006 compares with a $17.5 billon increase in first-half 2005.