The industrywide numbers look even better after considering ISO and PCIs notation that much of the decline in first-quarter net income reflects a special transaction in which one U.S. insurer assumed $9.3 billion in liabilities from a foreign entity in exchange for considerations valued at $7.1 billion. (ISO and PCI refused to name the carrier involved, but it didn't take much detective work to find that just last October, Equitasthe Lloyds runoff operationbought $7 billion in reinsurance from National Indemnity Company, a member of the Berkshire Hathaway group.)

Also contributing to the industrys drop in net income was the fact that the net gain on underwriting fell slightlydown about 1 percent to $8.3 billionwhile net written premium growth slowed to an anemic 0.8 percent in first-quarter 2007 from an already stagnant 1.8 percent the year before.

Indeed, net written premium growth was the weakest for any first quarter since 1992, Michael R. Murray, ISOs assistant vice president for financial analysis, noted in a statement, warning sellers to look out below. Market surveys and U.S. government data indicate that escalating competition and declines in the price of insurance are cutting into premium growth.

That premiums grew only about one-sixth as much as gross domestic product is an indication that intensifying competition is leading to lower prices for most coverage in most locationsthough property insurance remains scarce and expensive in some coastal areas, added Genio Staranczak, PCIs chief economist.

These factors had a negative impact on the industrys overall return.

Reflecting the declines in net income, the p-c industrys annualized rate of return on average policyholders surplus (statutory net worth) dropped to 12.9 percent in first-quarter 2007 from 15.5 percent in first-quarter 2006 and 17.9 percent in first-quarter 2005, noted ISO and PCI.

But even that result didnt seem so bad when put into a longer-term historical context. Insurers 12.9 percent rate of return for first-quarter 2007 was 1.8 percentage points above insurers 11.1 percent average first-quarter rate of return since the start of ISOs quarterly data in 1986, but it fell short of the rates of return typically earned by firms in other industries, said Mr. Murray.

There goes the industry again, singing the same blues about how its ROR lags that of other industries, citing unflattering comparisons to the Fortune 500. (Industry gadfly Bob Hunter, insurance director of the Consumer Federation of America, challenged what he characterized as an apples to oranges comparison when I met him back in late April, contending that the industry lumps stock and mutual companies together in its consolidated results, which distorts any comparison with a pure-stock index such as the Fortune 500. I have yet to hear anyone in the industry respond to that challenge.)

Mr. Staranczak of PCI also predicted eroding financial results for at least the short term, especially since the industry just entered the dreaded annual hurricane season.

Seasonal patterns in the data also suggest that insurers rate of return will decline later this year, he said. Insurers profitability in the first quarter usually exceeds their profitability later in the yearin part because of the timing of weather-related catastrophe losses.

However, the industry cant cry poverty just yet, as the combined ratio of loss and underwriting expenses per dollar of premium rose just slightly to 91.7 in the first quarter, against 91.1 a year agostill among the best results in the industrys recorded history.

The combined ratio for first-quarter 2007 is the second best for any first quarter since 1986when ISOs quarterly records begin, Mr. Murray noted. Although, to put the result into context, he added that it wasnt good enough for insurers to achieve the rate of return typically earned by firms in other industries.

Indeed, he said, taking into account 2007 investment results, financial leverage and tax rates, ISO estimates that the combined ratio would have had to improve to 89.6 for insurers to have earned the 13.9 percent long-term average rate of return for the Fortune 500.

Moreover, he added, insurers must now post better underwriting results just to be as profitable as they once were.

As an example, he noted that in first-quarter 1987, when the industrys combined ratio was 103.9, the annualized rate of return on average surplus was 15.9three percentage points higher than the industrys 12.9 percent rate of return for first-quarter 2007, even though the combined ratio was 12.2 points worse than the 91.7 combined ratio for the first quarter of this year.

Meanwhile, the industrys piggy bank got a bit fatter, as policyholders surplusthe industrys statutory net worthrose 1.9 percent to $496.6 billion as of March 31. The $9.4 billion gain is 29.3 percent less than the $13.4 billion increase in first-quarter 2006, the groups noted.

The financial performance of the property-casualty industry during the first quarter of 2007 was generally excellent, but at the same time provided confirmation that the industry is now past its cyclical peak in profitability of 14.0 percent achieved in 2006, Robert P. Hartwig, president of the Insurance Information Institute, said in a statement.

The only question that now remains is how long the decline in profitability will last and how many years it will take to get to the bottom, he added.

Noting that many insurance CEOs vow that it will be different this time around in terms of maintaining market discipline and profitability in the face of a generally softening market, Mr. Hartwig was somewhat skeptical.

We shall see, he said. There are many reasons to suggest insurers will be more successful at navigating the treacherous soft market shoals that lay ahead. Yet, it is also true that managing the market cycle has befuddled several generations of CEOs.

What do you folks make of the industry's results? Are insurers sitting pretty, or poised for a major decline in profits?