The third-quarter financial recap was grim indeed, with premium volume dropping, underwriting losses soaring, and the bottom line plummeting into negative territory. You have to wonder at this point if the industry will end up in the red when the books are closed for 2008, let alone how many carriers and agencies will make it 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 the Property Casualty Insurers Association of America and the Insurance Services Office (click here for the full story):

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

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

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

–Insurers suffered a $19.9 billion net underwriting loss in the first nine months–representing a $38.2 billion adverse swing from last years $18.4 billion in underwriting gains.

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

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

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

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

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

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

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

It's true that subprime woes crushed the mortgage and financial guaranty insurance sectors, dragging down industry-wide results. But even taking that factor into consideration, the rest of the p-c insurance industry's combined net income fell 68 percent for the first nine months, driving the return on equity down to an anemic 4.2 percent, compared with last year's relatively high return (for this profit-challenged industry, at least) of 13.1 percent.

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

The real challenge will come if there is another major catastrophe next year. Reinsurance is already more scarce and higher priced, and funds to replenish the industry's coffers will be hard to come by unless the capital crunch eases substantially.

In other words, it's time to batten down the hatches, keep expenses under tight control, and start looking for consolidation as struggling industry players seek strength in size and numbers.

What do you folks think?