The third-quarter financial recap was grim indeed, with premiumvolume dropping, underwriting losses soaring, and the bottom lineplummeting into negative territory. You have to wonder at thispoint if the industry will end up in the red when the books areclosed for 2008, let alone how many carriers and agencies will makeit through the challenging year ahead in one piece.

As they say when someone drops a killer hand on you in poker, read'em and weep.

As reported by our own Dan Hays, based on a survey by theProperty Casualty Insurers Association of America and the InsuranceServices Office (click here for the full story):

–The industry combined reported a third-quarter net loss of $9.9billion, while profits plunged 92 percent for the full year so farto just $4.1 billion.

–The third quarter loss represents a whopping $26.8 billionnegative shift compared with a profit of $16.9 billion in the sameperiod last year, while for the full nine months there was a $53billion drop in the bottom line.

–The industrys annualized rate of return for the quarter wasnegative-8 percent, compared with a positive return of 13 percentthe year before.

–Insurers suffered a $19.9 billion net underwriting loss in thefirst nine months–representing a $38.2 billion adverse swing fromlast years $18.4 billion in underwriting gains.

–The combined ratio deteriorated 11.8 points to 105.6, comparedto 93.8 for 2007s first three quarters.

–The industry-wide rate of return dropped to 1.1 percent for thefirst nine months of 2008–the second-lowest in 23 years–comparedwith 13.1 percent last year.

–Net investment gains fell 40.7 percent to $28.3 billion for thefirst nine months, down from $47.8 billion last year.

–Net written premiums dropped 0.4 percent–the industrys weakestperformance for the first nine months of any year since the startof ISOs quarterly financial data monitoring.

–Industrywide, third-quarter policyholder surplus is down 7.6percent since Jan. 1, shrinking by $40 billion to $478.5billion.

You'd like to think that after such a horrid report, theindustry can only go up from here. But unfortunately, with the bulkof the damage on Wall Street coming in the fourth quarter, and withmost of the cat losses for Hurricanes Ike and Gustav being paid outin the year's final reporting period, I can't imagine how theindustry will stay out of the red for the full year.

Will things turn around in 2009? I'd like to think so, but withthe industry still struggling to hike rates in a contractingeconomy, and with Wall Street likely to remain an unreliable sourceof income next year as President Barack Obama and friends struggleto get the country growing again, the odds are long that theindustry will see a return to big-time profitability anytimesoon.

It's true that subprime woes crushed the mortgage and financialguaranty insurance sectors, dragging down industry-wide results.But even taking that factor into consideration, the rest of the p-cinsurance industry's combined net income fell 68 percent for thefirst nine months, driving the return on equity down to an anemic4.2 percent, compared with last year's relatively high return (forthis profit-challenged industry, at least) of 13.1 percent.

No matter what, I don't expect to see a return to double-digitROEs anytime soon, do you?

The real challenge will come if there is another majorcatastrophe next year. Reinsurance is already more scarce andhigher priced, and funds to replenish the industry's coffers willbe hard to come by unless the capital crunch easessubstantially.

In other words, it's time to batten down the hatches, keepexpenses under tight control, and start looking for consolidationas struggling industry players seek strength in size andnumbers.

What do you folks think?