Every cloud has a silver lining, and after the difficulties of 2001, the forecasts for 2002 suggest that the industry will emerge from the financial shock of September 11 with its best prospects for growth in many years.

Analysts predict that underwriting performance will improve substantially with prices rising in most sectors.

According to the Insurance Information Institute Earlybird Forecast for 2002, the average forecast calls for an increase in net written premiums of 15.1 percent in 2002, resulting from a combination of increased prices and higher demand.

If this happens, the industry will grow at its fastest pace since 1986, analysts predict.

Moreover, estimates for net written premium growth in 2002 have been revised significantly upward to 10.3 percent (from 7.0 percent in last year's survey).

In 2000, industry premiums grew 5.1 percent. As recently as 1998 and 1999, net written premium growth was just 1.8 percent and 1.9 percent, respectively, the smallest increases in post-World War II history.

Sluggish premium growth during the 1990s-principally the result of intense price competition-has clearly given way to much stronger gains.

The current hard market was already well under way before September 11, with renewals in most major commercial lines in the ten percent to 15 percent range.

After September 11, the rate of increases for 2002 renewals in many of those same lines roughly doubled to 30 percent, on average.

In individual cases, premiums have increased even more, depending on the nature of the business, profile and location of commercial property, and concentration of employees and customers.

These increases reflect the heightened risk being assumed by insurers, who had not factored terrorism into premium pricing before September 11.

"We certainly think that, post September 11, a dramatic ratcheting up in the hard market environment will produce stronger results, starting in 2002," said Michael Lewis, senior insurance analyst with Warburg Dillion Reed in New York.

"There is scarcely a line of business anywhere that isn't seeing significant price increases," said Ron Frank, an analyst with Salomon Smith Barney in New York. "Everything we are seeing and hearing leads us to think that the industry, which had already resolved to begin seriously underwriting its business, is again doing that even more seriously as a result of 9/11."

The September 11 attacks are expected to cost insurers more than $30 billion. Even taking new capital into account, this historic loss has precipitated a withdrawal of capacity from key markets, thereby reducing the global supply of capital available to pay claims.

At the same time, insurance demand is on the rise as businesses around the world recognise that they face a new and significant risk. As in any other market, when supply falls and demand rises, prices go up.

The combined ratio for 2002 is projected to be 108.0, down dramatically from an estimated record-high 118.6 this year. If realised, the industry will see its first decline in the combined ratio since 1997.

Nevertheless, the industry will still be paying out $1.08 for every $1.00 it takes in. The estimate obviously assumes no major insured losses from terrorist acts in 2002 as well as "normal" catastrophe activity.

The 118.6 combined ratio estimated for 2001 is the highest on record, surpassing the 118.0 recorded in 1984. The expected improvement in 2002 underwriting results reflects a better balance between the price of insurance premiums and the increased risk of the post-September 11 environment.