The U.S. property-casualty insurance industry saw net incomeincrease 4.4 percent in the first nine months of 2007 asunderwriting profits and investment returns withstood increasingcompetition, said A.M. Best Co. rating firm.

Oldwick, N.J.-based Best reported that insurers are on course toreport only their third underwriting profit since 1978.

Net income was $49.8 billion, up from $47.7 billion, whileunderwriting income was $18.6 billion, compared with $23.8 billionfor the same period a year ago, Best said.

Net investment income increased 2.6 percent to $40.5 billion.The industry's after-tax return on equity was 14.5 percent for the12-month period ended Sept. 30, 2007, up from 14.3 percent for thepreceding 12 months but down from 15 percent at year-end 2006, Bestreported.

The rating firm found that deteriorating underwriting resultscut into profitability as premium erosion squeezed margins acrossmost lines of business. At the same time, light catastrophe lossesand favorable prior-year reserve development offset growingcompetition.

Best said the nine-month combined ratio deteriorated to astill-profitable 93.8 from 91.7.

The firm noted that credit market conditions have challengedmany financial services companies, but it found the U.S.property-casualty industry has been relatively unscathed by thesubprime mortgage crisis.

Best said the industry's policyholder surplus grew $25.4billion, or 5 percent, to $528.1 billion through the first ninemonths of 2007 from $502.7 billion at year-end 2006.

Underwriting results in personal lines, Best reported, havedeteriorated amid increases in the loss and loss-adjustment expenseand underwriting expense ratios.

Commercial lines were found to have maintained strongunderwriting results, aided by "apparently prudent underwriting,favorable loss-cost trends, mild catastrophe losses and healthierbalance sheets," Best added.