In the aftermath of September 11 the market has seen rate increases and there has been a surge of new capital to enable existing ventures to write more business.

Additional capital has also gone to back a wave of insurance start-ups with at least nine new companies coming to Bermuda in recent months.

But IPC Re's chief executive officer James Bryce, referring to last year's record losses, said: “Let's step back a little and look at the insurance industry in 2001. We had a major oil rig go down - that was half a billion dollars. In the second quarter, measurements by Property Claims Services (PCS) showed that it was the worst second quarter ever recorded in the history of the insurance industry. We then started off third quarter with the worst aviation war loss in history through the war in Sri Lanka. Following that we had the tragic event of September 11 which impacted virtually every class (of insurance) including life. The one exception was surety. And then we followed that with the collapse last quarter of Enron which is going to produce the largest surety loss, not only affecting the insurance industry but affecting the investment industry.

“Ultimately, we had quite an exit of capital during the course of 2001 and if you add up all of those events you are looking at estimates of $35 to $100 billion having left the industry.

Mr. Bryce said there could still be negative fall-out from the losses in 2001: “I think you have to keep that - the losses - in mind,” he said.

“The other thing is that very little of the loss, at least in terms of capacity, has actually been paid. So we have to look at the question of liquidity and it clearly may bring on issues of solvency in 2002.”

IPC Re itself seems to have weathered the storm, predicting year-end results - released on February 19 - to be the strongest to date.

But the company did record the biggest loss in its almost nine years, with $112 million exposure to the World Trade Center attack.

Ultimately Mr. Bryce said the losses last year will try the industry: “It is going to test the insurance industry, but I would hope that in most cases the industry would respond,” he said.

“The capital coming into the industry is sorely needed. How the capital is utilised is really the thing that everyone is watching very carefully. Discipline is the key. The new companies seem to be reasonably disciplined but they may well have to be if they are to make the returns that they are projecting.”

But Mr. Bryce predicted that there will still be insurance shortages, citing coverage for high rise buildings as an example. And at least for the time being he said, terrorism coverage was being excluded.

“Right now for property catastrophe reinsurance, terrorism coverage for commercial property is out but personal lines for homeowners - as there is obviously a much smaller threat - are included with the exception of nuclear, biological and chemical (NBC),” he said.

“That is not to say there won't be terrorism coverage going forward, but it has to be insured differently; it has to be a separate policy and it most certainly requires a federal reinsurance scheme, which has not yet been put in place.

“People are saying they don't think there will be another (terrorist) attack but what if another plane goes in to a high rise? There is still a risk that something could accidentally happen. That is something that assessments of probable maximum losses (PML) will be looking at.”