The head of the world's largest insurance company, AIG, spoke to an audience of over a thousand risk managers at the inaugural session at RIMS yesterday.

Maurice R. Greenberg, chief executive officer of AIG said that the biggest threats to the insurance industry are terrorism, the volatility of the equity and bond markets; and the US trial bar, which he said was "Out of control."

Mr. Greenberg said that AIG are compiling a black list of US states where the legal system is judged to be unfair to defendants.

A major problem exists in the fact that some of defendants being sued at a local level "do not have a chance" due to the "cosy relationship between the trial bar, judge and juries".

The legal awards being made to plaintiffs are a tap on the resources of the industry. Governors should be made to realise that companies will not invest in states that "take them to the cleaners".

Mr. Greenberg announced that AIG are launching a newspaper campaign, taking out full page ads to rank states according to their tort system, a countermeasure that he hopes will be "wake-up call for many."

The other battle that AIG are waging on the home front is the continuing threat of terrorism. "That's a war that's not going to end with the war in Iraq," said Mr. Greenberg.

He said AIG have recently gathered intelligence and security experts to beef up their expertise on terrorism and would be happy to share information and advice with colleagues. His other major topic was the difficult investment climate.

"The world has changed dramatically. Rating agencies have a faster trigger. Bond markets have been dramatically volatile. Many companies are no longer with us."

He said that AIG is the largest investor in corporate Bonds in the US and "Bonds and equities have taken a hair cut, as you know".

For fund managers, the implications of an insurance company "in tough shape" are that you need to be very careful choosing your insurance company. "Companies that have gone bankrupt are not a great place to try and collect a claim."

However his main message to the American corporations whose risk managers were listening to them is that they should support the insurance industry's initiative to put checks on the legal system.

The effects of continuing huge legal awards would be higher premiums, he said: "It's anti consumer in the long run. We have to pass on the charges."

Mr. Greenberg said that he has spent a lot of time this year trying to advance some changes to the US trial system. The major awards given by the jury system for liabilities such as asbestos are choking the insurance industry.

"What good does it do to bankrupt insurance companies? " he asked, "the only beneficiaries are the trial bar."

AIG are lobbying in Congress for reforms to the class action system. But he said he remains sceptical whether they can get both sides of the house to support the draft bills.

They would also like to see changes to the medical malpractice field. "That would benefit the whole medical profession."

A further improvement might be caps to legal fees and more defined ways of assessing whether someone is exhibiting signs of asbestos related diseases.

Summing up, he recognised that the assembled risk managers are concerned about rising premiums. Defending the rate increases, he said that the industry needs to raise capital and in order to that they need to have good results to show to investors.

But one way to reduce rates would be decrease the costs associated with legal awards. "The tort system in the US cost 2.5 percent. Of GDP and $200 billion last year.. We have an economy that's struggling. We do not need this monkey on our back."