According to the briefing, insurers and reinsurers on both sides of the Atlantic report strong and sometimes record-breaking results. Among the world's largest insurance and reinsurance companies, Swiss Re saw net income increase nearly 50 percent in the first half of 2007 compared to the prior year, and both Allianz and American International Group were up by almost one-third.

Bermuda-based Lloyd's underwriter Hiscox reported a 72 percent increase in net income through six months. Chubb's net income was up only 21 percent, but that was enough to push operating income per share into record numbers for the company, Advisen said.

The report warned that while insurance and reinsurance executives may be "basking in the glow of profitability today, and many analysts predict--barring major catastrophes--2007 will be an excellent year for the industry, dark clouds are on the horizon. Rates are falling in almost every line of business."

Advisen said that though buoyed by sharply higher windstorm and earthquake premiums, commercial insurance pricing has given up nearly 40 percent of the gains achieved in the 2001-2003 hard market. All indicators, the firm said, point not only to a continuation but to an acceleration of competition.

"The questions now are how far and how fast rates will fall, and how much damage will be done to balance sheets before the soft phase of the insurance pricing cycle bottoms out," the briefing advised.

Another cause of the current capacity glut is more than $30 billion in new capital that flowed into the insurance market in the wake of the 2005 hurricanes, the report found.

While some of that money was used to strengthen companies stung by hurricane losses, a significant amount went to finance new property catastrophe capacity--either to capitalize new insurers and reinsurers in Bermuda and other offshore domiciles, or to fund reinsurance sidecars and other alternative risk financing vehicles.

New capacity continues to be created in an active catastrophe bond market, with State Farm recently announcing plans for a huge $4 billion cat bond offering, Advisen said.

The report also said that underwriting discipline, touted as sufficient to stem the tide of falling rate levels, might give way to market pressure.

"I was an underwriter and underwriting manager for 20 years and everybody talks about underwriting discipline," Mr. Bradford said. "And eventually, almost everybody crumbles. It's really economic forces. At the end of the day, the power of supply and demand is a pretty strong influence."

He explained that underwriting discipline works "only if everybody is disciplined, but the reality is, pricing insurance and reinsurance is much more an art than it is a science, so somebody is always going to believe they can write a piece of business profitably, for less money. There's always going to be that competition."

He added, "At some point in time, any company that's trying to maintain discipline will come to a difficult decision of whether they start to lose their core business."

Once an underwriter reaches that point, most will say, "This is good business, we fought hard for it, it takes work to build a book of good business, and we're going to hang onto this at any price," he said, adding that "this is the point many are approaching in the marketplace."

According to Advisen's forecast, the soft market is unlikely to bottom out until enough surplus is destroyed to bring supply back in line with demand. The hard market of 2001-2003, the report said, was sparked when policyholders' surplus fell below 3.2 percent of gross domestic product (GDP), and the current soft market began when surplus rose above 3.2 percent of GDP.

"If we assume surplus equal to 3.2 percent of GDP is the magic number where the market will again turn," the report said, "surplus must be reduced by about $65 billion."