Last week, I talked about the need for seasoned underwriters in the insurance industry. This week, I will review some headlines which reinforce the importance of providing the adequate infrastructure to ensure our continued success in the global insurance marketplace including the need to find seasoned underwriters.

If one wants to understand the importance of the Bermuda international insurance industry to the rest of the world, one only had to look at the headlines in The Royal Gazette and other global periodicals last week to realise that when XL increased its reserves by $200 million, it shook the investment community's confidence in insurance stocks.

The significance of this shaken investor confidence is that XL's news was not limited to causing the reduction in share values for the Bermuda insurance companies.

It also caused global insurance stock values to be negatively affected.

After conducting an extensive review of its loss exposures, XL discovered it had under-reserved its exposure to September 11.

The investment community was unnerved because the Bermuda insurers, especially XL, are renowned for their conservative reserving practices.

Explained simply, reserving includes those funds which are put aside on an insurer's balance sheet to reflect losses the insurance company believes are out there but have not yet been reported to them.

XL's announcement that it made a mistake about its reserves caused the investment community to become jittery because they fear that if XL had miscalculated its loss reserves then by what factor had other insurers under reserved their exposure to September 11, 2001?

And if other insurers have under reserved, how will they have enough capital to pay for catastrophes which are inevitable in the industry.

Global insurance stocks including high powered American International Group (AIG) were affected by XL's announcement.

It is interesting that the announcement by XL could create such a ripple effect in the global insurance industry's stock values particularly since other jurisdictions look unfavourably upon our regulatory environment.

Yet, when one of our big insurers admits that it has made a mistake, tremendous weight is placed upon that mistake.

We are told insurance stocks were negatively affected by XL's announcement because the reserving practices of our Bermuda insurers are so much better than elsewhere. So why is Bermuda's credibility always questioned? Analysts and regulatory bodies have two completely different agendas.

f only they spoke to each other, maybe they could intercept some of the insolvencies before they happen.

With the ripple effect from the XL announcement, it shows just how important the Bermuda market is to providing a balance to the global insurance industry.

Bermuda is fast becoming the benchmark for how well the insurance industry is doing in the world. If we were to get it wrong, where would the industry be?

It is paramount that we have the right people, right infrastructure, and right technology to ensure our marketplace continues to work effectively.

We can ill afford to project an us against them mentality. We are a part of the global economy by the nature of the business that is written here.

As with any other jurisdictions, there will be some “failures” in the Bermuda insurance marketplace. Some of the new as well as incumbent carriers may not be here in a few years time. This hard market is pushing up rates.

There have been no major catastrophes so insurance companies are generating great premiums at the moment without having to pay out on major claims.

However, should there be any major catastrophes while the stock market is in such a volatile state, despite significant premium increases; some insurers will not make it. This is why the investment community reacted so negatively to XL's news.

In addition, the Bermuda insurance marketplace is still being used as a punching bag by other jurisdictions around the world.

We are also being held to a different standard to other jurisdictions. It is probably because we are a small island which was looked on as a backward group of people who had no business savvy.

However, our results have proven them wrong time and time again. Yet, we can not forget our success is also based on the inefficiency of other jurisdictions. Should we fail to uphold our professional image or should other jurisdictions correct their inefficiencies, we will be finished.

Take for instance the fact that the Bermuda insurance industry and the London insurance market have a love/hate relationship. Interestingly enough, much of the hate comes from Lloyds.

In the Monday, July 22, 2002 issue of the Royal Gazette, chairman of Hiscox Plc, Robert Hiscox said he feels London is better placed than Bermuda because of its physical location.

What does this statement mean in today's global economy? Why would the head of one of Lloyd's leading syndicates make such a statement when he is fully aware of the massive capital infusion Lloyd's has received from the Bermuda international insurance industry?

In today's technological and global economy, there is no such thing as one jurisdiction being better placed than another.

Does Mr. Hiscox not want to acknowledge that it is the might of the Bermuda insurers that have actually helped to keep the Lloyd's market in operation? The international insurance industry in Bermuda is one of the largest corporate investors in Lloyd's.

In addition, XL's increase in reserves was necessary because of its investment in Lloyd's syndicates.

Apparently it took XL all this time to figure out the layers of reinsurance purchased by its Lloyds syndicates before it was able to fully comprehend its total exposure to September 11, 2001.

Yet, London, according to Mr. Riley, is better placed than Bermuda.

It is paramount that we get our underwriting formula right. We have too much to lose otherwise. We need underwriters who can underwrite for global exposures which means we need a balance of underwriters who have seen and understand the implications of underwriting global risks both from an insurance and reinsurance perspective.

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Cathy Duffy is a Chartered Property Casualty Underwriter (CPCU) and is now a freelance writer. She is a former executive of Zurich Global Energy and has 15 years experience in the insurance industry. She writes on insurance issues in The Royal Gazette every Monday. Feedback crduffycwbda.bm