The mood was not so much somber as shell-shocked at yesterdaysProperty-Casualty Insurance Joint Industry Forum, as you mightexpect in the midst of the worst financial crisis since The GreatDepression, with no turnaround in sight. But all things considered,things could be a lot worse for insurers, and they know it.

I got the sense that those in attendance at what I consider theindustrys annual family reunion were just happy to still be inbusiness and employed, given the massive hits to their bottom linesfrom catastrophe losses and investment implosions.

Speakers at the event tried to rally the troops–not with falsehopes of a quick recovery, but with justifiable pride that insurerswere better prepared to ride out the financial storm than theirbanking and securities peers.

As one of the outside experts on the opening panel, I got theball rolling by noting that while American International Group is aposter child for the bailout generation, it was AIG's unregulatedFinancial Products division, not their state-regulated insuranceunits, that got the company into trouble and prompted Uncle Samsintervention.

One speaker after another emphasized a similar themethat whenall is said and done, insurers as risk managers are looking prettygood right now. They stand behind the products they write, and evenif they buy reinsurance to spread their exposure, ultimately theyare on the hook for any losses that occur, and must have thecapital to account for it.

Compare insurers to bankers, who packagedirresponsibly-underwritten home loans into toxic securities, andpassed them off to investors who didnt bother to look at what theywere getting into, and who naively thought they had hedged theirbets by purchasing magical credit default swaps.

New York Insurance Superintendent Eric Dinallo, in an address tothe group, said insurers (and their regulators) should giveourselves a little pat on the back for the stability theproperty-casualty sector was able to maintain amid historicfinancial instability.

It comes down to the fact that at any given moment, p-c insurersmust put up or shut up when a massive loss occurs, required to keepenough liquid capital on hand to pay claims, he noted.

Mr. Dinallo called credit default swaps a catastrophic enabler,marveling at how supposedly sophisticated investors thought theyhad insurance that turned out to be nothing like insurance at all,with no capitalization required, all in the name of innovativesecuritization.

We modernized ourselves right back into the Ice Age, he said.(For more on Mr. Dinallos talk about federal regulation and theresurrection of the New York Insurance Exchange, click here.)

Meanwhile, Pierre Ozendo, chairman and chief executive officerof Swiss Re America Corp., was cautiously optimistic during the CEOpanel. However, while he said that the worst is probably behind us,he warned about “one caveatunemployment, calling ongoing, massivejob losses a systemic risk that could seriously undermine insuranceindustry profitability in the years ahead.

We all must hope the promised stimulus package [being puttogether by Congress and the Obama administration transition team]is effective in creating jobs, he said. Amen!

Many complained about countervailing forces hamstringinginsurers in their quest to boost their top- and bottom lines byfinally raising prices after a long and deep soft market.

With the recession forcing businesses to contract or go bust,insurable exposures are falling, taking the wind out of thehardening markets sails. (For more about this, see my Jan. 12 blogentry about MMC CEO Brian Duperraults take on the invisible hardmarket.)

There was little humor at this years grim forum, but panelistMike McGavick, formerly of Safeco and now CEO of XL Capital, gotoff the best joke of the day.

After some talk about product innovation to cover greenconstruction, housing and cars, he noted that looking out at theaudience he saw all familiar faces, although many were now withdifferent companies.

This industry at least appears to be good at recycling, heobserved.