Driven by a sharp decline in catastrophe losses from hurricanes and other natural disasters in 2006, the U.S. property/casualty industry posted a $24.4 billion net gain on underwriting through nine months. The net gain on underwriting through nine-months 2006 stands in stark contrast to the $2.5 billion net loss on underwriting through nine-months 2005.

But before you heave a sigh of relief over the survival of the beleaguered insurance companies, consider this: the industry’s positive underwriting results contributed to an increase in its net income after taxes to $44.9 billion in nine-months 2006 from $29.7 billion in nine-months 2005. Reflecting the increase in net income after taxes, the industry’s annualized rate of return on average policyholders’ surplus (net worth) rose to 13.4 percent in nine-months 2006 from 9.8 percent in nine-months 2005, according to ISO and the Property Casualty Insurers Association of America (PCI).

In other words, the ‘underwriting’ portion of the insurance companies’ business, that portion of their activity that cost them billions after Katrina and Rita and all the other hurricanes, that portion of their business that led to tens of millions of dollars in rate increases across the Southeast – that portion of their business left still left them with a net income of $30 billion dollars in 2005 – the Year of the Hurricane. If you’re an investor, a tough year means an ROI of just under 10 percent.

According to ISO’s Property Claim Services (PCS) unit, direct insured losses from catastrophes dropped to $7.6 billion in nine-months 2006 from $51.1 billion in nine-months 2005. Any industry that can take a $51 billion hit to the bottom line and still maintain a net (after taxes) of close to $30 billion is an industry with an ironclad cash flow. Where do you suppose it comes from?

“While the fact that no major hurricanes hit the U.S. in 2006 was certainly good news for the millions of consumers still recovering from the devastating impact of the 2004 and 2005 storm seasons, we view this development as an anomaly rather than a trend,” said Genio Staranczak, PCI’s chief economist. “Natural catastrophes still pose a huge threat to consumers and businesses along the Gulf and Atlantic Coasts.”

But not necessarily to the bottom line, if you’re in the insurance biz.