The industry managed positive results despite a drop of $1.4 billion, or 1.3 percent, to $105.1 billion in net written premiums. Net earned premiums declined $2.8 billion, or 2.7 percent, to $102.8 billion.

The increase in net income was powered by net investment gains that more than tripled, rising $8.8 billion to $12.6 billion from the previous year's first quarter.

Underwriting results also improved in the quarter as net losses on underwriting fell $800 million, or close to 30 percent, to $1.8 billion. Loss and loss adjustment expenses dropped $4.3 billion to $74.5 billion in the quarter.

The loss results translated into an improved combined ratio of 101.1 compared to 102.2 for the first quarter to 2009.

The report said policyholders' surplus--insurers' net worth measured according to Statutory Accounting Principals--rose $29.2 billion, or 5.7 percent, to $540.7 billion.

"This is further proof that home, auto and business insurers are fiscally sound, that we have been strong and stable throughout the economic downturn of the last two years, and that we are able to pay claims to policyholders during their times of need," David Sampson, PCI president and chief executive officer, said in a statement.

He added that the numbers point to an industry that can confidently handle the blows from the upcoming hurricane season.

Michael R. Murray, ISO assistant vice president for financial analysis, noted challenges facing insurers, including written premiums that have declined "for an unprecedented 12 consecutive quarters."

He also said the 6.7 percent annual rate of return is 3.5 percentage points less than the average 10.3 percent average annualized first-quarter rate of return based on data extending back to 1986.

In his own commentary on the results, Robert P. Hartwig, president of the Insurance Information Institute in New York, said the first-quarter numbers "are a welcome beginning to the year after several years of tough quarters." He added, "The results also bode well for the full year."

He noted that the mortgage and financial guaranty insurers continue to have "a disproportionate impact on industry profitability"--while only accounting for 2 percent of the industry premium, they ran a negative 65 percent annualized return on average surplus in the first quarter.

Their net income was negative $1.8 billion in the quarter.

Excluding those insurers, Mr. Hartwig said return on average surplus would have risen to 8.3 percent during the first quarter.

"Increased profitability and rising capacity during the quarter (the latter adjusted for a unique transaction) are primarily attributable to improved investment market performance," said Mr. Hartwig. "At the same time, persistent soft market conditions and the lingering effects of the deep recession continue to impact growth."

He added, "Fundamentally, the property and casualty insurance industry remains quite strong financially, with capital adequacy ratios remaining high relative to long-term historical averages."

Yesterday, A.M. Best released its report on U.S. p&c insurer financial impairments (companies that have been taken over by regulators but have not gone out of business), saying they have more than tripled since 2007.

In 2009 there were a total of 18, compared to 16 in 2008 and five in 2007.

The Oldwick, N.J.-based insurance rating agency said there have been four impairments so far this year and that for the past 41 years of its study, the frequency of impairments rises "after periods of economic and financial market stress."

The number of impaired companies is expected to rise, Best said, "as insurers absorb ongoing underwriting and investment losses..." and regulators take control of companies they can't find buyers for.