NEW YORK (CNNMoney.com) - After facing a slew of insurance scandals, mounting catastrophe losses from Hurricane Katrina and the prospect of losing its terrorism insurance backstop, the insurance industry will hardly be sorry to bid adieu to 2005.

But the industry was resilient with insurance carriers' net income up 4.4 percent to $28.8 billion in the first nine months of the year, according to the Insurance Services Office. And 2006 could spell even bigger profits as widespread rate hikes help boost gains for the industry, at least in the short-term.

According to the Council of Insurance Agents and Brokers Commercial Market Index survey, rates for commercial accounts experienced an average decline of 8.2 percent in the third quarter -- the seventh straight quarter of declines for the industry. But, in the wake of the severe hurricane season this year and with the expectation that hurricanes will continue to be increasingly fierce going forward, market observers expect the market to harden in 2006 when it comes to rates.

At an industry conference in November, Allstate (Research) chief executive Edward Liddy said the company is targeting double-digit rate increases in areas with exposure to hurricane activity, such as Louisiana, Alabama, Virginia and Texas. Allstate won approval for a 9 percent rate increase in Florida earlier this year and is currently in arbitration to procure an 18 percent hike in the state.

Liddy said the double-digit rate increase stem from the severe losses the company suffered in the third quarter as a result of Hurricanes Katrina and Wilma. The company said the hurricanes triggered $3 billion of catastrophe payouts in the quarter, up almost $2 billion from the same quarter last year.

Allstate isn't alone. American International Group (Research)'s Chief Financial Officer Steven Bensinger said earlier in December, that the company plans to raise its rates for consumers in catastrophe-prone areas due to the rising cost of reinsurance.

Peter Streit, insurance research analyst at Williams Capital Group, said he expects rate increases of 20 percent to 40 percent as less capital becomes available for the reinsurers who offer insurance to property and casualty and other insurers.

AIG, which also sells reinsurance, said it plans a 10 percent to 35 percent increase in its own reinsurance products.

"The high catastrophe losses in 2005 have given the industry a psychological advantage in terms of keeping prices high next year," said Donald Light, senior analyst at Celent LLC. "Overall, it looks like a pretty good year for the property-casualty industry."

Analysts from Fitch Ratings agree. In a research note, a team of analysts from the company said net written premium volume should climb to a 5.6 percent growth rate from 3.2 percent in 2005.

But analysts were skeptical that the rate increases will have a long-term benefit for the industry, saying that the insurance market will continue to be highly competitive in 2006 and the pricing could prove to be a temporary phenomenon.

And analysts said that if next year's hurricane season proves to be even more severe than 2005, that could cut into profits despite any rate increases.

While higher rates are one of the piece of the pie in 2006, Celent's Light said the industry will also benefit from shaking off some of the reputational damage done by state and federal regulator's investigation into industry practices, which hit stock prices hard and resulted in some expensive settlements and earnings restatements from players such as Marsh & McLennan (Research) and AIG.

"It seems to be the major scandals are in the past and (N.Y. Attorney General Eliot) Spitzer is no where near as aggressive as he was in the first part of the year," Light said.

But he added that litigation continues to be an unknown factor going into the new year and the industry may run into problems if there are any "litigation disasters" from civil suits against insurance companies. He said the industry will have to keep a close eye on the lawsuits stemming from Hurricane Katrina, in which the plaintiffs are asking the industry to broaden the risks it covers, such as flood damage.

"If some of those cases are successful, it could depress the industry," he said.

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Allstate's CEO sees big rate hikes ahead. Click here for that story.

AIG sees reinsurance rates climbing next year. Click here for more on that story.

After a devastating hurricane season, insurers are playing the blame game for losses. Find out more here.