Something as devastating as a powerful hurricane wrecking Miami or smashing into New York City, or a major earthquake ripping up one of California's big cities would now be needed to end the insurance sector's deepening soft market.

Disaster catastrophes creating a magnitude of insured losses twice as great as 2005's hurricanes Katrina, Rita and Wilma are needed to prevent a lengthy soft market taking hold, according to a leading analyst.

New York-based Advisen believes it would take more than $100 billion of extraordinary catastrophe losses to wipe out the over capacity in the current insurance market.

If there is no major catastrophe in the remainder of this year the amount of loss needed to reverse the soft market trend will be $115 billion. To put that in perspective, the hurricanes of 2005 - including the flooding of New Orleans - created insured losses of $66 billion, meaning it was an extraordinarily 'bad year' for insurers.

But it would now require a catastrophe or catastrophes producing twice as much insured loss to suck up the market's over-capacity and return the sector to the hard market.

What would that mean? Some analysts predict an earthquake as devastating as that which hit San Francisco in 1906 would cause insured losses of up to $105 billion.

"Essentially, the cat modeller's worse case scenario - a hurricane decimating Miami, then continuing up the Florida coast; a hurricane raking the New Jersey coastline before plowing into New York City, or a mammoth California earthquake - likely would be required to turn the market this year," said David Bradford, editor-in-chief of Advisen's latest briefing, which is entitled 'The Soft Market: How Low Can It Go'.

Having examined sector data, Advison has plotted the level of surplus capacity in the US market and found that it is on track to end this year higher than the peak recorded at the height of the last soft market cycle in 1998.

Nine years ago the surplus as a percentage of US gross domestic product was just over 3.8 percent. Advisen arrives at its figure by factoring together the US property and casualty industry's aggregate policy holders' surplus and the USA's GDP.

Mr. Bradford said: "As of the end of 2006, surplus was equal to about 3.8 percent of GDP - very close to the peak set in 1998 at the bottom of the last soft market. However, there is no indication that the current cycle is close to bottoming out, and the present state of overcapacity - and with it increasingly cutthroat competition - is likely to worsen."

He warns that while company executives are basking in the glory of profitability there are "dark clouds on the horizon" as rates fall across all business lines.

Mr. Bradford told : "I suspect prices will keep falling barring any catastrophes through 2008 and then they will rattle around down at the bottom (of the soft market) for a while. It could be three or four years before there is any turn around."

Concern about what might happen next in a market where premiums are falling and competition fierce has been on the minds of insurance and reinsurance CEOs throughout 2007 with a number of those based in Bermuda voicing a belief that underwriting discipline will hold and company's will not start writing under-priced risk business.

Mr. Bradford is not so sure that level of prudence will be maintained.

"I do not know how disciplined the market is at the moment. The sense I get is that companies are still posting favourable results but this is a reflection of market conditions from a year ago and not now. I feel the discipline is crumbling," he said.

"This is the story that is repeated cycle after cycle. Once the discipline starts to crumble it freefalls. There comes a point in the market where prices are still reasonably good and some companies start to slightly lower their prices (to get extra business). That can then act as a trigger for others."

As Mr. Bradford notes in the report: "Underwriting discipline means that underwriters are willing to walk away from under-priced business, but every insurer has a core book of business it seeks to protect throughout the cycle, even if that means writing accounts at a loss for a while.

"It is a rare insurer that is willing to watch its hard-earned portfolio dwindle to nothing."

He feels that without a mega-catastrophe it is likely that companies will start producing underwriting losses, most likely beginning sometime in 2008.

And the Advisen editor also believes the evolution of the sector, with its ability to rapidly create new companies and operations when a hard market occurs - and with huge capital investors waiting in the wings to seize such opportunities - the length of favourable hard markets in the economic cycle is destined to become shorter and shorter.

"The insurance industry inevitably is a victim of its own success. Profits increase capacity, which fuels competition, which forces rates down, which wipes out profits," said Mr. Bradford.

"Since solvency regulations make it difficult to return excess capital to shareholders, insurers find they have few alternatives other than returning excess capital to policyholders by pricing business below cost.

"To make the situation more painful, the ease with which new capacity now can be created means that hard markets are likely to be short-lived. Insurers and reinsurers are presently enjoying exceptional returns, but it is likely that these halcyon days are drawing to a close."