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Reinsurers Report Modest Increase In First Half Combined Ratio

Reinsurers reported a combined loss and expense ratio of 117.6 for the first half of 2002, up from 115.6 in the first half of 2001. The results indicate that the industry is returning to cost-based pricing after the September 11 terrorist attacks shot the combined for the full year 2001 up to 139.3. Net written premiums for the six months ended June 30, 2002 amounted to $14.4 billion. The Reinsurance Association of America (RAA) whose members write about 75 percent of U.S. reinsurance premiums reported these results.

Despite improving numbers, the September 11 losses continue to burden the market. The Insurance Services Office estimated that insured property losses from the attack on the World Trade Center amount to $20.3 billion - not including liability insurance, workers' comp, aviation, and life/health. Estimates of overall insured losses range upward from $40 billion.

With interest rates at near-record lows and the stock market still in the doldrums, insurers and reinsurers can no longer depend on investment income to offset underwriting losses. The unforeseen scandals at Enron and elsewhere in corporate America will weigh on the market as well. Mounting fall-out from Enron, Arthur Andersen, and other corporate misdeeds is exposing the insurance industry to surging liability claims in the Directors & Officers, Errors & Omissions, Fiduciary Liability, and Surety lines. In this environment, reinsurance companies are raising prices, restricting terms and conditions, and excluding or severely limiting terrorism coverage.

In its annual Reinsurance Underwriting Review, RAA reported, "The terrorist attacks, along with other significant loss exposures, affected both underwriting profitability and investment return, producing the first industry net loss and the highest combined ratio since the RAA began keeping records in 1969." The report may be purchased through RAA's web site, www.reinsurance.org.