Both ISO and NAII said the industry's underwriting and investment results have made progress. The groups pointed out that the overall net losses on underwriting fell 69 percent to $5.7 billion for 2003's first nine months, compared to the corresponding period during 2002.

"Underwriting results improved as premium growth outpaced growth in loss and loss-adjustment expenses, other underwriting expenses, and dividends to policyholders," according to the ISO/NAII report.

The industry's net investment income, mostly dividends from stocks and interest on bonds, also showed better results, reaching $27.7 billion for the 2003 nine-month period, a more than 3 percent jump from the year before.

The industry's surplus also made gains, up 12 percent to $319.9 billion at the end of 2003 third quarter, compared to the year-end 2002 period when the industry had $285.4 billion in surplus.

John Kollar, vice president for consulting and research at ISO, observed that the industry's annualized rate-of-return on average surplus rose to more than 9 percent during the 2003 nine-month period, up from more than 2 percent during the corresponding period in 2002 and a dismal, negative 1.1 percent reported in 2001.

Still, Mr. Kollar cautioned that while the industry's progress is encouraging, "only time will tell" whether insurers can ever regain profitability like the more than 13 percent annualized rate-of-return for nine-months 1997 or the 15 percent rate-of-return for full-year 1986.

Mr. Kollar warned that the current hard market is "already showing its age." He pointed out, for instance, that the industry's net written premiums reached $308.6 billion for the 2003 nine-month period, up only $28.3 billion from the corresponding period in 2002. While this still represents a strong 10 percent improvement from the year-ago period, it is nonetheless lower than the 14 percent gain in net written premiums recorded during nine-months 2002.

What's more, Mr. Kollar added, ISO's data shows that rate hikes on renewals of commercial policies are losing momentum.

"Rate changes on renewals first turned positive in July 1999 and accelerated for three years, peaking at 12.9 percent versus year-ago levels in July 2002," he noted.

But since then, rate increases on renewals have been slowing, falling to just less than 8 percent last June.

"Recent market surveys suggest that rate increases have continued to moderate, with rates for some coverages and market segments now flat to down," he observed. "All else being equal, insurers will have an increasingly difficult time maintaining growth in net income as rate increases wane."

Don Griffin, assistant vice president for business and personal lines at NAII, also said, "Now, the 64-thousand-dollar question is, how long will insurers maintain their focus on the fundamentals?"

Each progressing improvement in insurers' results makes it that much harder to "resist the temptation to ignore the fundamentals and go for market share," he noted.