Driven by lower catastrophe losses and higher premiums,profitability in the private U.S. property and casualty insurers'market rose sharply in the third quarter.

The results led Robert Hartwig, president of the InsuranceInformation Institute, to say that they put the industry on a “firmtrajectory” for what will “assuredly be its best year in thepost-crisis era.”

According to data released by ISO and the Property CasualtyInsurers Association of America (PCI), net income after taxes roseto $43 billion in nine-months 2013, from $27.8 billion in the sameperiod of 2012.

ISO and PCI say P&C insurers' overall profitability asmeasured by their annualized rate of return on averagepolicyholders' surplus increased to 9.5 percent from 6.5percent.

Hartwig adds that there now is “no question” that 2013fourth-quarter performance for the property and casualty insuranceindustry “will be far superior” to 2012.

He explained that will happen because last year's fourth quarterincludes the impacts of Hurricane Sandy, which resulted in $18.8billion in insured catastrophe losses. “No event in the fourthquarter of 2013 comes remotely close,” Hartwig saus.

In addition, he says P&C insurers will benefit from a strongperformance in financial markets during the final quarter of theyear.

ISO and PCI say nine-month results for 2013 benefited from a$2.1 billion increase in net investment gains—the sum of netinvestment income and realized capital gains (or losses) oninvestments—to $40.4 billion compared to $38.3 billion innine-months 2012.

Michael R. Murray, ISO's assistant vice president for financialanalysis, says his analysis indicates that a number of factors wereinvolved in the improved results. Besides “relatively benignweather,” special developments that helped improve the resultsincluded developments in the mortgage and financial guarantyinsurance segments.

Murray and Hartwig say improvements in these sectors added toincreases in overall reserves in the industry. Hartwig says thesesectors had been “hit hard during the financial crisis but have nowlargely recovered.”

The improvement in underwriting and investment results waspartially offset by a drop in miscellaneous other income and highertaxes, Murray says.

Insurers' pretax operating income—the sum of net gains or losseson underwriting, net investment income, and miscellaneous otherincome—grew to $45.7 billion in nine-months 2013 from $31.4 billionin nine-months 2012.

The increases in insurers' pretax operating income, net incomeafter taxes, and overall rate of return were driven by a $16.7billion swing to $10.5 billion in net gains on underwriting innine-months 2013 from $6.2 billion in net losses on underwriting innine-months 2012.

The combined ratio improved to 95.8 for nine-months 2013 from100.7 for nine-months 2012, Murray says.

Hartwig says persistently low interest rates “remain a challengefor the industry,” but he notes overall industry capacity rose to arecord $624.4 billion as of September 30, 2013—up $45.1 billion, or7.8 percent, from $579.3 billion as of year-end 2012.