In the opening address at the fifth World Insurance Forum being held at the Fairmont Southampton Princess this week, AIG senior vice chairman Thomas Tizzio said insurers needed to get back to basics and focus on the fundamental values that form the foundation of solid underwriting.

Before giving his speech, Mr. Tizzio, who was the eleventh hour replacement for AIG chairman and CEO Maurice (Hank) Greenberg, said Mr. Greenberg "clearly, unequivocally" had the flu, otherwise he would have given the opening speech at the Symposium.

Mr. Tizzio said September 11 had a significant impact on the industry and exacerbated trends that were already evident and gave an overview of several areas in the industry undergoing change.

Speaking about the Bermuda market, Mr. Tizzio said: "Over the past two decades, Bermuda-based companies have become global entities in the world insurance and reinsurance market place. Everyone must recognise that the Bermuda market is involved in all major financial centres world-wide. This being the case, Bermuda's regulation of the industry must be seen in the context of the important role it plays in global fiscal stability."

He added: "Bermuda should avoid tying itself to low tax jurisdictions, particularly in the Caribbean, when dealing with increasingly sensitive regulatory issues. Bermuda must continue to be proactive and anticipate changes that are taking place in virtually all world financial centres, failure to do so could impeded the success of work that has taken place thus far."

Speaking about recent events in corporate America, Mr. Tizzio said whether it was the collapse of Enron or the bankruptcy of K-Mart, corporate governance and responsibility of directors and officers is at the centre of a storm right now. "Congress wants to know how it happened and who is to blame, and the country wants to know who is to blame as well", he said.

"Lots of fingers are pointing at the SEC, accounting firms and rating agencies. But one thing is certain, in 2002, the focus is going to be put on the directors and officers in corporate America. The SEC and regulators will subject them to greater scrutiny, but at the end of the day, who is going to pay for all these investigations, litigations, settlements and awards?"

And he said underwriters and brokers must immediately address how to handle what could ultimately become one of the most catastrophic years for the D&O sector. "For the first time in a long while, directors are being asked if they really understand the companies they represent. At the same time they are asking themselves do they have D&O coverage, what is the amount, and who is it with?"

Mr. Tizzio said this was giving the industry a wake-up call, but it also puts it back on the path to profitability, and he said it was necessary to get back to the basics in many areas. He said: "Underwriters must understand the risk to which they are committing their capacity, taking charge must be commensurate with the risks accepted, and the scope of coverage."

"We recognise that they are making new capacity in the market place from time to time, however I would question the longevity of any underwriter who states that he can quote a risk cheaper than their competitions simply because he did not have the losses."

Examining the reinsurance industry, Mr. Tizzio said the industry was coming off some of the worst years in its history. The field of domestic reinsurers has shrunk to about two thirds of where it was ten years ago, from 120 stand alone companies, to about 30 remaining, and most of these are linked to global partners. He also said the five largest reinsurance companies controlled about 40 percent of the market place.

He said there have been some improvements in the reinsurance industry and that following September 11, there had been a flight to quality, which he said was certainly resulting from the market's heightened awareness to obtain reinsurance from financially strong companies.

"The reinsurance world is seeing higher prices, higher attachments with lower limits, more restrictive terms and conditions, and more specific information requirements," he said.

Looking at some of the key coverage issues with the impact of September 11 Mr. Tizzio said the US government had not passed any law providing protection for the industry.

"It's a tough guess if they will and when they will.

"The marketplace, is putting exclusions on property policies as they come up for renewal, and only two states, California and New York, as well as 28 others, can't exclude the peril of fire following terrorism," which he said would raise many problems.

"While 2001 may have marked the end of the soft market, property/casualty rates still have a way to go before the industry is running at an adequate rate of return.

"Rates firmed up after a decade of decline in prices and some categories had been down about 70 to 75 percent.

"Over the same period of time, policy conditions broadened, increasing exposures and loss costs as well.

"While these trends are most pronounced in the US, the European market and the Asian market also felt similar impacts," said Mr. Tizzio

He concluded: "Loss costs have escalated, and it is very difficult in many states to produce a profit. In many ways we will continue to cross unchartered territory in 2002, but for most of us in the world insurance industry the challenges are clear. On the underwriting side, it is up to us to demonstrate the energy, creativeness and discipline to deliver the best solutions that meet our customers personal requirements. We need to get back to basics and focus on the fundamental values that form the foundation of solid underwriting."