"A very bad year, the worst since 1906." That's the way analysts expect 1983 to turn out for the U.S. property-casualty insurance industry.

That benchmark is picked with reason--1906 is remembered for the great San Francisco earthquake and fire, and the resulting heavy claims on insurers.

The industry isn't predicting an earthquake this year, but it does expect to be shaken by a decline in its net income of 15 to 20 percent, on the heels of an 11 percent decrease last year. Those losses are likely to lead to higher rates for consumers, more layoffs and mergers, and perhaps some failures of insurance companies.

"As far as investors are concerned, 1983 is a gone year," says Gus Demeo, an analyst with Conning & Co., a Hartford brokerage firm that follows stock companies. (Investor-owned companies make up two-thirds to three-fourths of the industry, although some of the largest are mutual insurance companies.)

The Insurance Service Office in New York, a trade group, projects that the combined ratio of premiums earned to losses and expenses incurred will hit a record 114 this year, up from about 111 in 1982. That means that for every $100 the industry collects in premiums, it will pay out $114 in claims and expenses, which would require companies to dip into their reserves. (While reserves are substantial at many companies, some analysts believe they are inadequate for the industry as a whole.)

Normally, companies that experience underwriting losses can still show net earnings because of their investment income, but decreasing interest rates on smaller portfolios are deflating that cushion. (Net income is composed of revenues from premiums minus claims and expenses, plus interest or gains on investments.)

ISO's president, Daniel J. McNamara, warned recently, "At [a ratio of] 114, insurers have reached the point where investment income cannot offset underwriting losses. Insurers as a whole have reached the precipice; some individual insurance companies will be under severe pressure" to survive.

Last year, underwriting losses for both stock and mutual companies soared by 64 percent to $10.4 billion, exceeding the combined losses of the two previous years, according to A. M. Best Co., an independent statistical organization. Only investment income, which rose 12 percent to $14.9 billion, kept the industry in the black.

Net income for the first nine months of 1982 was down 26 percent, to $3.87 billion. Estimates for all of 1982 hover around $4.8 billion.

Since the industry was hit with $350 million in claims from the San Francisco earthquake, it has grown accustomed to a boom-and-bust cycle of three good years followed by three bad ones. But it is worried because 1983 looms as the fifth bad year in a row. From a high of $8.5 billion in 1978, net income has dropped each year.

Demeo says the industry got hit with a "double whammy" last year as competition and reduced demand caused by the recession forced down rates, especially on commercial policies.

Catastrophe experience proved the worst since 1979, when two large hurricanes struck. Intensely cold weather early in 1982 sent claims soaring to three times the level of the 1981 winter. A large oil rig collapsed, and there were several major hotel fires. Medical malpractice and workers' compensation claims both increased. The cost of parts and labor to repair autos continued to rise, as did bodily injury claims.

The U.S. industry also has been hurt by the doubling of insurance capacity at Lloyd's of London during the last five years, and by the scandals that shook that market in 1982.

All this has taken its toll. The Wall Street Journal reported last week that some companies have cut back their workforce by up to 5 percent. Independent agencies also are suffering as companies turn to direct selling to reduce expenses. Insolvencies have wiped out a few small companies, according to Ernest Jacob, an analyst with Alex Brown & Sons of Baltimore; the largest of these was Kenilworth Insurance of Chicago.

Several companies reportedly are struggling this year. For example, underwriting losses for Commercial Union, the Boston subsidiary of a British corporation, increased by 66.5 percent to $207 million in the first nine months of 1982; its combined ratio of claims to premiums jumped from 109.6 to 117.1. The company, which recently laid off 135 employes, declined to reveal its net income.

W. T. Grimm Co. of Chicago recorded 66 mergers in the first nine months of 1982, up from 59 in the same period the previous year, with the reported value of the transactions doubling. In fact, two insurance mergers were among the top five in U.S. business in 1982, according to Fortune magazine. Connecticut General and INA combined in a $1.9 billion merger, and American General acquired NLT in a $1.5 billion deal.

The Cigna merger has not yet begun to generate synergy, analysts say. The company reported a 23 percent drop in net income during the first three quarters of 1982. Property and casualty underwriting losses amounted to $423 million. Its combined ratio climbed to 114.4 from 107 in 1981.

President Robert B. Kilpatrick has predicted that this year may not be any better than 1982, although the longer-term outlook is brighter due, in part, to increases in personal line premiums. Two thousand jobs have been eliminated, and another 2,000 employes are expected to be laid off over the next two years.

American General's acquisition of INA was completed in November, so results do not affect nine-month figures, the latest available. A spokesman said that if earnings for the year ended in September were restated to include the acquisition, the per-share profit would be raised from $7.17 to $8.04.

A few companies are said to be bucking the trend by turning a profit on underwriting. Among them are Safeco Insurance Companies of Seattle, General Reinsurance Corp. of Greenwich, American International Group of New York and Mission Insurance Co. of Los Angeles.

Property-casualty companies have already begun to raise their rates on personal lines, particularly auto coverage. The ISO reports that these premiums grew 26 percent during the last three years versus just 3 percent on commercial auto policies. However, Demeo believes that it will take a year before earnings reflect the premium increases.

Another threat to the insurance industry is the challenge to the use of sex to determine rates. The Reagan administration recently told the Supreme Court it believes that annuity plans that give women smaller benefits each year than men because the life expectancy of women is greater violate civil rights laws.

Should the Supreme Court rule in favor of unisex benefits in annuities, it could create "serious solvency questions" for some insurers, according to Andre Maisonpierre, senior vice president of the Alliance of American Insurers. The cost of making public-employe pension benefits equal retroactively for men and women, for example, has been estimated at $20 billion for state governments.

If the court agrees with the administration view and the decision is retroactive, "the ball game is over," said Maisonpierre. In any event, Congress may step into the issue to bar classification by sex for insurance purposes.

The net effect of requirements for equal benefits--and thus, rates--for both sexes would be higher automobile and life insurance premiums for women. Young women drivers would be especially affected; their auto insurance premiums would go up 25 to 30 percent.

As a result, Maisonpierre continued, companies would compete fiercely to sell policies to young women, who as a group have fewer accidents than men but would be paying higher premiums than now. And many young men would be relegated to expensive assigned-risk categories because of the accident experience for their age group and sex.