America is in the midst of a crisis of confidence which could bear on Bermuda's business sector - especially some of the Island's insurance companies, according to a leading insurance economist.

Dr. Robert Hartwig, chief economist at the Insurance Information Institute in New York, underscored the gravity of the situation in America by highlighting that President George Bush was speaking on Wall Street on reforms to right corporate wrongs. In his speech, Mr. Bush cited corporate scandals - including multi-billion dollar accounting scandals in recent months from such corporate giants as Enron, World Com and Xerox - as popping up "nearly every week".

Dr. Hartwig told The Royal Gazette the end result of the crisis in corporate governance would be more severe penalties for corporate officers.

Indeed the SEC had already begun its crackdown with the announcement more than a week ago that it would require the CEOs and chief financial officers of 946 companies - with more than $1.2 billion in annual revenue - traded on US stock exchanges to personally certify that their firm's financial information was "fair and accurate".

Although some of Bermuda's larger US listed companies did not appear on that list, at least one company operating from the Island - insurance giant ACE - announced yesterday that their chiefs would voluntarily comply.

Of the effect of US reforms on Bermuda's insurance sector, Dr. Hartwig said directors' and officers' insurance - often referred to as D&O - would see an increase in business on the back of a rapid increase in shareholder suits against company bosses.

Dr. Hartwig cited the situation as being a "conflagration" or a great and destructive fire that was already under way.

He said: "The house is already on fire. It does not mean that (D&O) coverage is not going to be available but it is going to be more expensive and with higher retentions.'' But far from spelling trouble for Bermuda insurers, Dr. Hartwig said business for companies that offer D&O insurance was on the rise and some claims may not stand up if fraud was at play.

Insurance companies offering D&O insurance locally include ACE, Allied World Assurance Co., Chubb Atlantic Indemnity, Endurance Specialty, Starr Excess and XL according to statistics from the Bermuda Insurance Institute. Dr. Hartwig cited directors' and officers' insurance as the "hardest single commercial market" with less supply commanding much higher premiums than in the previous market.

Hand in hand with business opportunity insurers could also be hit with claims from policies already in place but some claims may not stand up, according to Dr. Hartwig. Dr. Hartwig said although insurers were not in business to not pay claims, the industry did not insure criminal acts including fraud. And he claimed that if there were allegations or evidence of fraud - as there had been in some recent corporate cases - insurers would have grounds to contest claims. He added that an insurance contract can also be rescinded if information - for example financial data - given at the time of writing the contract was false or not representative of the company's true position. Dr. Hartwig concluded that ultimately insurers would have grounds to contest D&O claims if there was the "appearance of fraud or insider dealing."

Regardless of the end result of lawsuits linked to the emerging wave of corporate scandal, corporate management will be operating in a different landscape now, if reforms touted by Mr. Bush yesterday are put in place. Mr. Bush sternly admonished the symbol of corporate America, Wall Street, that the country was set to "usher in a new era of integrity in corporate America."

Aside from stricter regulations to bring about above-board corporate governance, Mr. Bush also highlighted the economic importance of long-term tax cuts, promotion of free trade and passing of a terrorism insurance bill "to give companies the security they need to expand and build," he said. Mr. Bush said it would be impossible for Government to remove all risks from investing but that it could "ensure that those who breach the trust of the American people are punished," he said. Among reforms cited as pending were greater powers for the US Securities and Exchange Commission (SEC) investigators and extra funding and manpower to enable enforcement of the law.