NEW YORK (Dow Jones Newswires) - Commercial property-casualty and liability insurance rates are likely to continue to rise into 2003, if not longer, ACE Ltd.'s (ACE) top executive said on Wednesday.

At a luncheon with reporters, Brian Duperreault, the Bermuda insurer's chairman and chief executive, said the industry was still recouping capital it lost due to the September 11 terrorist attacks, the weak equity markets and overly competitive pricing in the 1990s. It could take several years of higher rates and better underwriting practices for the industry to overcome its “past sins,” Duperreault said.

At the same time, insurance rates for terrorism coverage mandated by a new law signed by President Bush last week are likely to be “reasonable.” In the next few weeks, insurers, including ACE, are required to offer coverage for international acts of terrorism in the US to commercial-insurance customers who have had terrorism coverage excluded in the past. Clients have the option to turn down the new coverage if they don't want it or don't think they can afford it.

But ACE president Dominic Frederico warned the high price of terrorism insurance was not likely to fall, despite the new law aimed at making terror cover easily available. While the exact consequences of the Terrorism Risk Insurance Act - passed into law last week - are still unclear, executives of ACE said it is unlikely customers will be paying less for cover. “(Terror insurance) shouldn't be priced differently,” Mr. Frederico, president of ACE, told reporters. “The existing market is the benchmark.”

Under the legislation, the federal government will cover 90 percent of the industry's terrorism losses if they exceed a certain threshold - 7 percent of the industry's premiums in the first year, 10 percent in the second year and 15 percent in the third year.

Losses would be capped at $100 billion. Insurers will be required to meet a deductible before the federal government will reimburse their losses.

Duperreault said insurers aren't likely to charge exorbitant amounts for the coverage, in part because every direct policy they write counts against their total maximum liability under the new - whether or not they provide terrorism coverage or not.

It makes more sense for insurers to charge less and be able to spread the cost of covering terrorism to all of their customers - not just the ones that are most at risk, Duperreault said.

ACE has a small stand-alone terrorism-risk business that it started in the past year. Executives said they believe the business will continue to do well despite the passage of the federal terrorism backstop.

Duperreault said he believes a reinsurance market will develop for terrorism now that a good bit has been clarified about potential insurance exposure in the US, thanks to the US backstop.

Meanwhile, Duperreault said capacity, or availability, in the directors and officers liability insurance market remains tight globally and likely could become tighter when policies come up for renewal next year. Duperreault also said he expects more mutual and privately held insurers to pursue initial public offerings as equity markets recover. For the moment, there's not much appetite among investors to place their capital in property-casualty companies, he said.