With the industry’s capital drained this year by natural catastrophes, financial market losses and falling rates, “the end of the soft market in insurance has arrived,” according to Evan Greenberg, chairman and chief executive officer of ACE Limited.

While the insurance industry was overcapitalized at the beginning of the year, disasters–both natural, in terms of storm losses, and man-made, given the financial meltdown on Wall Street–have set the stage for a turnaround in insurance pricing, Mr. Greenberg said during an earnings conference call, in which he announced a 92 percent drop in third-quarter income for his Zurich-based company.

“Additionally, downgrades and government ownership are impairing the ability of a number of companies to operate in the same manner as they have in the past,” limiting their abilities to effectively deploy capital, he said.

“I believe the soft market is now over,” he declared, predicting that “this fact will work its way to the trading level in the next few months.” He noted that rate declines have “slowed or stopped” in many parts of the world, while they are beginning to rise in poorly performing lines like energy.

At ACE, management has “mandated as a rule flat pricing–no reductions,” he said.

Mr. Greenberg’s comments echoed statements by AXIS CEO John Charman, who during his company’s earnings call said: “We believe a hard market in 2009 is a near certainty.”

Mr. Charman and other executives of companies created in Bermuda are heralding the end of the soft market in both the insurance and reinsurance segments–noting that reinsurance, in particular, is viewed as a capital alternative at a time when the cost of capital is high and insurers are becoming more risk averse. Not only is capital supply strained, but demand is higher, he said.

The two executives also addressed questions about changes in the market brought on by problems at American International Group–both in terms of opportunities for other companies, as well as the aggressiveness of competition they’re seeing from AIG on individual accounts.

“In my view, AIG is the haystack, not the straw that broke our industry camel’s back,” according to Mr. Charman.

Mr. Greenberg said that “ACE will be one of the companies that strives to take advantage of…opportunities,” referring more broadly to opportunities “created by casualties” in the insurance world. “The exact size, shape and timing are unclear, as events are unfolding rapidly,” he noted, stating that ACE expects to “emerge bigger and stronger.”

Mr. Greenberg addressed a specific question about business coming to market and seeking an alternative to AIG by citing the surge in submission flow for ACE–reporting that ACE’s submissions in October so far have surpassed submissions last year for the entire fourth quarter.

Tracking activity by month, he said submissions jumped 12 percent in August and September over last year, 31 percent in early October, and 50 percent in all of October. Large-account submissions are up 80 percent, he said, attributing all the activity to “weakness at other insurers.”

Not all those submissions can yet be converted to quotes, however, he noted.

“When it comes to the one large player who is under stress, they are an outlier right now in the pricing environment,” he said. “They are aggressively cutting pricing in an irresponsible way, and it’s worrisome.”

At ACE, net realized and unrealized investment after-tax losses of $1.3 billion, along with $311 million in losses for Hurricanes Gustav and Ike, helped push the third-quarter bottom line gain down to $54 million, or 16 cents per share, compared to $656 million, or $1.95 per share in last year’s third quarter.

Excluding $450 million of net realized losses for this year’s third quarter, net operating income was $504 million, representing a decline of 27 percent from third-quarter 2007.

Mr. Greenberg, who said he believes that ACE continues to perform “quite well” during a period of “seismic change” in the financial markets, pointed to flat operating income for the nine-month period and a combined ratio of 97.9 to demonstrate ACE’s earnings strength.

ACE, which also reported nine-month net income of $1.2 billion, will not be providing earnings guidance in the mid-December timeframe as is usually the case, Mr. Greenberg announced.

“Our business mix may very well change,” he said, noting there is too much uncertainty with respect to the economic slowdown and stress in the financial markets to predict exactly how the mix will change at this point. Guidance may be delayed to as late as early 2009, he said.

Meanwhile, AXIS Capital Holdings Ltd. reported a third-quarter net loss of $249 million, or $1.79 per diluted common share, compared to a third-quarter 2007 net income of $270 million, or $1.65 per diluted common share.

The company cited Hurricanes Gustav and Ike as well as investment losses from the “unprecedented financial market volatility and disruption to the financial system” as reasons for the quarter’s results.

For its insurance segment, AXIS reported an underwriting loss of $22 million, compared to third-quarter 2007 underwriting income of $111 million. The combined ratio was 102.8 compared to 63.3 in 2007. AXIS said it saw net losses of $115 million from Hurricanes Gustav and Ike.

The company reported net realized investment losses of $89 million for the quarter, which included other-than-temporary impairment charges of $50 million, of which $29 million related to fixed maturity holdings in Lehman Brothers.

Realized losses on the sale of investments were $41 million, including a $60 million loss on the sale of Fannie Mae and Freddie Mac preferred equity, partially offset by realized gains on the sale of certain fixed maturities, AXIS said. In the third quarter of 2007, net realized losses were $1 million.

Third-quarter 2008 gross premiums written were $403 million, down 16 percent from third-quarter 2007. Reported net premiums of $236 million were down 25 percent from a year ago.

“We reduced gross premiums written in many of our property-casualty lines of business this quarter as a result of continued competitive market conditions,” AXIS said in a statement. “Our political-risk premium also decreased this quarter, reflecting the reduction in available transactions as private capital flows slowed amidst the ongoing global financial crisis.”

AXIS added that it will reserve capacity for expected increases in pricing that “we expect when liquidity returns to the financial markets.”

In the reinsurance segment, AXIS reported an underwriting loss of $164 million for the quarter, compared to underwriting income of $88 million last year. The combined ratio was 141.4 compared to 77.1 in the prior-year quarter.

The reinsurance segment reported gross premiums written of $323 million, up 17 percent from the third quarter of 2007, driven by reinstatement premiums written of $29 million following Hurricanes Gustav and Ike.

AXIS said third-quarter 2008 net investment income decreased $68 million, or 57 percent, from the third quarter of 2007 to $51 million, driven by a reduction in investment income from the company’s alternative investment portfolio of $68 million, “the majority of which emanated from unrealized losses on our credit and hedge funds.”

For the first nine months, AXIS reported net income of $220 million, or $1.40 per diluted share, compared with $749 million, or $4.53 per diluted share, in 2007.

(With additional reporting by Phil Gusman.)