Given the massive catastrophe losses absorbed by insurers in 2005, the increase in income during the first three quarters is a testament to the underlying financial health of the industry.

Given the massive catastrophe losses absorbed by insurers in nine-months 2005, the increase in income and surplus during the first three quarters of the year is a testament to the underlying financial health of the industry. But we can't afford to lose sight of the fact that, as bad as Hurricanes Katrina and Rita were, insurers and the public remain exposed to far more devastating catastrophes that could strain insurers' ability to fulfill their obligations to policyholders. According to PCS, Hurricane Katrina caused a record $38.1 billion in direct insured losses to property. But catastrophe modeling by AIR Worldwide shows we face the prospect of hurricanes causing more than $100 billion in damage. Even as we applaud insurers' success coping with the catastrophes of 2005, we must do more to assure that insurers and the people they serve will survive when even more devastating storms strike.

Unfortunately, hurricane and severe weather experts are predicting another very active hurricane season.

All of these odds are from one-and-a-half to twice as high as the annual odds during the past century. This means there is an extremely high probability that 2006 will turn out to be another very challenging year.

The insurance industry's profitability and healthy surplus in the wake of record catastrophe losses through nine months may turn out to be good news for insurance buyers who have been bracing for possible rate increases. With the price of insurance being determined by the law of supply and demand, and supply being determined by profitability and capacity, countrywide results through nine months may mean that rate increases could be largely limited to those lines and states directly affected by this year's hurricanes.

Further complicating any assessment of the dynamics of reinsurance markets and how those dynamics will affect primary insurance markets, the unprecedented losses caused by this year's hurricanes may change insurers' perceptions of the amount of risk they've taken on and the amount of reinsurance they need.