The companies that provide Americans with their homeowners and auto insurance made a record $44.8-billion profit last year even after accounting for the claims of policyholders wiped out by Hurricane Katrina and the other big storms of 2005, according to the firms' filings with state regulators.

Top executives described the profit — an 18.7% increase over the previous year — as a fluke, the product of gains in other lines of insurance besides homeowners and a very good year for their investments

They said that even with the increase, insurers face deep problems that can be fixed only by substantial premium hikes, a scaling back of commitments by several firms to the most disaster-prone portions of the country and, according to some, a greatly expanded role for the state and federal governments in insuring individuals against the largest of catastrophes.

"Unless insurers can get relief, you're going to see a pullback by the private industry," warned Robert P. Hartwig, chief economist of the industry-funded Insurance Information Institute.

"We're not being good stewards of our investors' capital or our policyholders' surplus if we keep doing business where we can't make money."

In fact, the property casualty insurance industry, which provides homeowners and auto coverage, made a considerable sum despite paying tens of billions of dollars to policyholders as a result of Katrina, which is widely described as the largest insured disaster in U.S. history, and a string of other storms.

Besides boosting profits, the industry raised its surplus by more than 7% to nearly $427 billion, according to an analysis of company filings by the National Assn. of Insurance Commissioners, which represents regulators from the 50 states. The surplus is intended to provide a financial cushion in times of high claims.

The industry covered virtually all of its claims and expenses with premiums earned during the year rather than with surplus funds, according to the organization's analysis. The ratio of claims and expenses to premiums was among the lowest in three decades.

The question is: How, in a year that produced an estimated $56.8 billion in disaster losses, nearly twice the previous record and more than twice what insurers paid after the Sept. 11 attacks, is this possible?

The answer, in part, is that U.S. insurers purchased disaster insurance of their own before the 2005 storms, much of it from overseas firms. Executives said that half — and by some estimates, nearly two-thirds — of the insured losses from last year's hurricanes ultimately will be borne by so-called reinsurers, many based in Bermuda and Europe.

In part, it's because of what Hartwig called the "anomaly" of so much of the 2005 storm damage being caused by flooding, which private insurers don't cover and instead rely on Washington to handle through the national flood insurance program.

But the industry's remarkable performance also reflects a dozen-year effort by insurers to insulate themselves from the most extreme financial consequences of catastrophe by, among other things, shifting risks previously borne by companies to policyholders and the public.

The effort started after the last big batch of natural disasters in the early 1990s, among them Hurricane Andrew in Florida in 1992, and the Oakland hills firestorm in 1991 and Northridge earthquake in 1994 in California.

The effort has included industry adoption of increasingly sophisticated techniques for analyzing catastrophic risk, as well as self-imposed limits on how much firms will cover and where. It also has included successful campaigns to get states or state-created entities to shoulder such dangers as earthquakes in California and wind in Florida, Texas, Hawaii and elsewhere. And it has involved tightening policy language — by, for example, narrowing the definition of "replacement cost" for homes — in ways that leave individuals bearing more of the burden of putting their material lives back together after trouble strikes.

While premiums for homeowners insurance have increased by more than half since the early 1990s, coverage, especially in disasters, has shrunk. Historically, insurers covered a little more than 60% of total losses in disasters, according to Hartwig, the industry economist. During the 2004 hurricanes in Florida, they covered less than 50%, according to Hartwig's numbers. During Katrina, he said, they covered about 30%, due in part to the high flood damage.

In making these changes, the insurance industry has been part of a trend that has picked up steam as the U.S. economy has grown more competitive in recent decades — a shift of financial risks from business and often government to individual households.

"If last year's hurricane season had occurred 10 years ago, it would have been devastating for the company," said Allstate Vice President Fred F. Cripe in an interview. "Last year, it was merely disappointing."

Despite evidence of industry success in reducing its financial exposure in disasters, major insurers — most prominently Allstate — have announced a new round of risk-limiting steps, including approving no new homeowners policies along substantial stretches of the nation's East and Gulf coasts. Several have called for creation of state and federal funds to serve as financial backstops for the industry in the biggest disasters.

The new proposals have drawn fire from a wide variety of quarters.

George K. Bernstein, appointed by President Nixon as the first administrator to oversee the government's flood, riot and crime insurance programs, said that private insurers had already pulled out of other risky lines of business.

"There's not going to be much left that they do insure by the time it's all over," he warned.

California Insurance Commissioner John Garamendi said: "The insurance industry is running away from risk, and leaving policyholders holding the bag."

Among those policyholders are Robert and Denise Sebastian, whose two-story brick house at 326 Bellaire Drive in the sedate Country Club Gardens section of New Orleans flooded after the walls of one of the city's major canals gave way during Katrina.

Sebastian, a 52-year-old official with the federal Minerals Management Service, has filled three loose-leaf binders with correspondence and phone notes from his efforts to collect more than $450,000 he believes his family is owed by St. Paul Travelers and Encompass Insurance, an Allstate subsidiary.

He has managed to get about half of that amount, but only after repeated clashes with the companies and returning several small checks proffered as full payment. Despite what he says is evidence of roof damage and leaking, Encompass recently denied his claim for $100,000, saying damage was due to flood or settlement and therefore was not covered by his policy.

"My wife and I are both lawyers," said Sebastian. "We've put every bit of our wherewithal into pursing these claims, and we're still not settled after seven months.

"I wonder what happens to the grandmother in Gentilly."

To be sure, Katrina and last year's other big storms dealt body blows to some insurance companies. Mississippi's No. 2 insurer, Mississippi Farm Bureau Mutual Insurance, went broke after paying $450 million in claims, and is being dissolved, according to state officials. PXRE Reinsurance Co., a subsidiary of Bermuda-based PXRE Group Ltd., has been forced to explore "strategic alternatives," according to a recent statement, after storm-related claims and expenses outstripped premiums by nearly 1,000%.

In addition, the final chapter has not been written for several insurers, including State Farm Fire and Casualty Co., USAA and Nationwide Mutual Insurance Co., because of lawsuits filed on behalf of Mississippi policyholders by prominent lawyer Richard Scruggs and the state's attorney general, Jim Hood.

Both charge the firms with wrongly denying claims for Katrina-related wind and water damage. In Hood's case, he argues that the standard provisions of homeowners policies excluding flood coverage are ambiguous. But company lawyers say the policies are clear. Industry analysts think that the plaintiffs stand little chance of succeeding, and that even if they do, the results will not fundamentally alter the companies' finances.

Among insurers, the consensus is that the industry is in the best shape it has been in years. Some argue against tampering with success.

"We've been through some of the worst natural disasters and man-made catastrophes in our history, and had some of the best earnings in the last 20 or 30 years," said Frank W. Nutter, president of the Reinsurance Assn. of America, a Washington trade group.

Nutter accused companies that are calling for major changes in coverage and creation of public backstop programs of engaging in "a risk-shift strategy of moving risks off their books onto government and policyholders." Members of Nutter's group stand to make big profits from major insurers stocking up on reinsurance to guard against fresh catastrophes. Reinsurers are said to have raised premiums by 100% or more since last year's storms.

Other industry executives insist they are simply trying to protect their companies and the public.

Hartwig, the industry economist, and Cripe, the Allstate vice president, said that insurers' greatest concern is that the number and intensity of big storms hitting the U.S. coast have risen and are likely to stay high for years to come. They said that although the industry easily handled the costs of the last two years of hurricanes, a similar pummeling during the next few years would deplete its finances.

As evidence of the change, the pair noted that seven of the 10 most costly hurricanes in U.S. history occurred during the last two years. And they cited the recent announcement by a leading disaster modeling firm, Risk Management Solutions Inc. of Newark, Calif., that chances of devastating storms making landfall are dramatically higher than it previously predicted.

RMS executive vice president Paul VanderMarck said in an interview that the firm's decision to switch from using 100-year averages to looking at just the last five years in forecasting storms, and the resulting jump in its prediction of big storm losses along the East and Gulf coasts, was based solely on new scientific knowledge, for example on rising ocean temperatures, and the views of an expert panel.

But critics said that the change was the product of pressure from insurers seeking to justify rate hikes and that, in any case, it represented an unfair changing of the rules by the industry.

"The companies came in after the early 1990s disasters and told us, 'We're going to start using these long-term models that are going to have periods of intense activity and periods of no activity," said J. Robert Hunter, who was Texas insurance commissioner at the time and is now insurance director at the Consumer Federation of America. "They wanted us set the rates so that it would even things out across the highs and lows, and we agreed," Hunter said.

"Now they're coming back," he continued, "and saying 'Oops! We got it wrong; we're going to change the model.' That reneges on the deal."

The state's current commissioner, Mike Geeslin, had similar sentiments: "You have companies that say they have a plan to stay put year in and year out, and gather a large share of the market. Then they decide they have more risk than they can stomach."

The result, Geeslin said, is that the state must either "prop them up" with rate hikes and other concessions, or step in and take their place.

Industry executives offer a second argument for drastic change that goes well beyond altered weather patterns and focuses especially on the need for federal and state backup for insurers. They suggest that the combination of rapid real estate development and rising home prices so raise the risk of gargantuan loss in a hurricane that much of coastal America has become virtually uninsurable by private industry.

In a recent speech, Allstate Chief Executive Edward M. Liddy painted a vivid picture of how a tightly packed set of storms could erase first the profits, then potentially the financial stability, of an insurer in a quick blast.

"When Hurricane Andrew hit the coast of Florida in 1992," Liddy told a Washington audience in January, "it wiped out all of the profits Allstate ever made in the state from all lines of insurance over the course of our history…. And when four hurricanes hit in 2004, they wiped out all the profits from 1992 to 2004.

"That's not a viable economic proposition for a company," he told his audience. "It's not a viable economic proposition for an industry."

Without government backup, he seemed to be saying, Allstate and other companies would have little business reason to continue offering insurance of any sort.

But a quick check of Allstate's regulatory filings from the mid-1990s through 2004 showed that the insurer earned $6 billion more in premiums in Florida than it incurred in losses. Add to that the premium earnings for last year, and the total rises to more than $6.6 billion.

Asked about what happened to that sum, Allstate spokesman Mike Trevino responded: "What Mr. Liddy meant to say is that … the four hurricanes wiped out all the profits Allstate earned from our homeowners line of business," not all lines.

Overall, the company made money.