Insurance economist Robert Hartwig yesterday said the Island's insurance sector is crucial to the industry's recovery on a global scale.

Although agreeing with recent international news reports that claim the surge of new capital to the Island's existing and new insurance ventures is having an impact on the level to which the market will harden, Mr. Hartwig, who is with the New York office of the Insurance Information Institute (III) said: "Bermuda has played a critical role in the recovery, worldwide, of the insurance industry. And particularly in the US following September 11."

Mr. Hartwig said it is not only the new companies - as nine new reinsurers have incorporated on the Island in the wake of September 11 - but also the established Bermuda insurers that have contributed to the market's return: "The existing insurers are helping to speed along the recovery," he said.

Mr. Hartwig said Bermuda's insurance sector does have impact on the extent of rate increases seen in the hardening market: "If you were to envision a world without Bermuda and no new capital, it is true, the hardening market would be harder and the duration longer."

But Mr. Hartwig said the market was hardening despite the new capital driving increased capacity: "The fact that there is capacity does not mean the market is not hardening," he said.

He added that one should bear in mind that not much of the new capital coming in to the insurance industry - which he put at $15 billion - has not yet been deployed.

Mr. Hartwig added: "Secondarily, it is estimated that insured losses - from September 11 - are in the $40 billion range. And during the third quarter of 2001 $10 billion of that was booked. In the fourth quarter, it was estimated - as most results have yet to be released - that another $8 to $10 billion was posted. And there will continue to be additional amounts posted through 2002," he said.

Despite the heavy losses in 2001, Mr. Hartwig said he is confident the industry will recover: "I do not foresee a crisis on solvency.There is no question that the companies holding the bulk of exposure (to the events of September 11) remain solvent.

"I could see some of the smaller insurers suffer liquidity or solvency problems in 2002, but not the larger companies," he said.

Mr. Hartwig cited Swiss Re, Munich Re, Berkshire Hathaway and Bermuda-based ACE and XL as amongst the insurers who suffered large losses but are solidly solvent.

Mr. Hartwig added the market is undergoing change as it adjusts to a "new, and higher plateau of risk".