Happy New Year everyone!

I'm sure the insurance industry is happy to see the back of 2001. 2001 - the year that will go down in history as the most redefining time for the insurance industry. The worst loss ever suffered by the industry through the terrorist attacks in the United States. The worst ever bankruptcy case with Enron. And last but not least, the worst ever insurance results.

2002 is promising to be the make or break year for many in the insurance industry. I've decided to start my column for 2002 by going out on a limb. I'm going to give my predictions for what I think will happen in the insurance industry in 2002.

1. Several direct insurers will be forced to cut back on both the lines of business they can write and the capacity they can offer due to stricter reinsurance underwriting guidelines.

2. Many direct insurers will be forced to begin the 2002 underwriting year full of uncertainties because their reinsurance treaties will not be fully in place.

3. It will be April before many reinsurance treaties are finalised, with many not signed until June.

4. There will be several major natural catastrophes this year.

5. Several major hurricanes will occur worldwide with at least one wreaking havoc in the Gulf of Mexico causing extensive damage to the oil companies.

6. Some property cat markets will be forced to exit the market. Others will limit their capacity in certain jurisdictions.

7. A major US corporation will have a class-action suit filed against it by the families of people who have been killed or injured by anthrax contamination.

8. There will be a huge debate about whether the anthrax contamination should be considered a terrorist attack or an individual attack.

9. Insurers will debate whether the anthrax contamination is an insurable loss.

10. The Doctrine of Sovereign Immunity will also be tested. The Doctrine of Sovereign Immunity means the government can be not sued in a court of law. In recent years, it has been abolished in many state courts and by the federal government. However from time to time, it is used as a defense mechanism to protect the government. The argument the major US corporation will use is that it was developing the anthrax for the US government for warfare. Because the anthrax was developed to the government's specifications, the issue being argued will be whether the company can be held accountable for something it would not have produced without having been asked to do so by the US government.

11. The Bermuda insurance market will come under increased scrutiny by the US government when those insurers and reinsurers headquartered in the US put pressure on the US government to protect them from losing business. These companies will argue their livelihood is being threatened by the “lack of regulation” in Bermuda being exploited by their competitors.

12. The US will not change regulatory requirements but will make waves so that it can be seen to be doing something for its corporate citizens.

13. Osama bin Laden will not be captured.

14. He will continue to terrorise the world by releasing videotapes periodically to have the rest of us believe he is still in control.

15. His network will close down a major city in Europe placing more strain on the insurance industry by forcing the global economy to take a nosedive again.

16. His network will also change tactics to create new types of terrorism which will raise doubt as to whether the events occurring are terrorist related or not. The new wave of terrorism will once again create debate about what constitutes terrorism and what does not by the insurance world.

17. One or two major insurers and reinsurers will cease operations.

18. There will be continued trouble in Lloyds with some of the syndicates winding down operations.

19. Lloyds will face a new wave of suits by its Names for careless underwriting practices.

20. Many more off balance sheet deals will come to light as a result of new SEC regulations about the way financial records are reported (because of Enron's bankruptcy).

21. Several accounting firms responsible for verifying the financial reporting of these companies will be sued by shareholders of the bankrupt companies.

22. D&O rates will increase substantially.

23. As a consequence of new SEC regulations, we will see several of the major corporations going back to core operations to save their companies from bankruptcy proceedings.

24. There will be more mergers of companies operating within the same industry groups as they seek ways to grow their businesses.

25. These mergers will continue to reduce the number of insurance policyholders worldwide, which will have an adverse effect on the performance of insurance and reinsurance companies.

26. Most of the changes will occur in the energy industry.

27. Some major corporations growing frustrated with the lack of what they consider to be reasonably priced insurance will look to alternative means of insuring their risks including utilising captives.

28. Bermuda could see an upsurge in captives again.

29. The hardest hit will be Fortune 500 companies who will find that there is no capacity for them below $100 million at reasonable rates. They will also find pricing above $100mil will not drop off as much as it used to in the past. Therefore they will find that not only will they be bare (without insurance) for their primary layers, they will also find that large limits at high attachment points will not be cost effective.

30. New reinsurers and insurers formed in 2001 as a result of the shortfall in the industry will be surprised by considerably less business opportunities in nondistressed classes of business than they had originally anticipated.

31. One or two major insurers will face D&O suits due to the overstatement of earnings to shareholders. Shareholders will claim they only invested in these companies based on their favourable projections.

32. Bermuda will come out on top as the new insurance centre of the world.

33. Some of the new insurers and reinsurers that have set up here will survive not with the staggering results they originally thought they would have but they will survive.

34. By year-end, the world will come out of recession and the insurers and reinsurers will sigh from relief as they begin to make money from investment income again.

35. The surviving companies will go through a honeymoon period before prices begin to slowly drop.

2002 will definitely prove to be the year of adjustment for the insurance industry. Those companies that survive this year should be in a good position to continue for quite some time. So there we have it, my predictions for the year. Enjoy 2002!

Cathy Duffy is a Chartered Property Casualty Underwriter (CPCU) and is now a freelance writer. She is a former executive of Zurich Global Energy and has 15 years experience in the insurance industry. She writes on insurance issues in the Royal Gazette every Monday. Feedback crduffy@cwbda.bm