The unprecedented events of September 11 have forever changed the way the insurance industry defines risk, according to ratings agency A.M. Best's Property/Casualty Review/Preview released this week.

The United States ratings agency said both property and liability lines have been exposed to catastrophic risks that cannot be priced using traditional actuarial methods.

It said affordability and availability of reinsurance have been severely impaired and most reinsurers are unwilling to cover terrorism risks. Primary insurers are limited in their ability to change pricing and coverage terms, it added.

The A.M. Best review said equity markets have become directly correlated with insurance losses.

The report said efforts to create an industry-wide solution to the new threat of terrorism foreshadow an acceleration of commercial lines deregulation, financial services convergence and the integration of insurance with capital markets.

A.M. Best added that against the backdrop of weak financial trends, this new risk environment has accelerated the hardening of the US property/casualty market.

Those that thrive in this new risk environment will possess unquestionable financial strength, it continued, having reestablished a strong commitment to conservative fundamental insurance practices or having never left them.

Sound operating fundamentals are enabling successful insurers to effectively manage the inevitable underwriting cycle, it added.

Ultimately, these front-runners are better positioned to capitalise on renewed flight-to-quality trends and benefit from the hardening market and those with higher-quality books of business and stronger balance sheets will outperform the industry when the soft market returns, it predicted.

The Review/Preview report presents A.M. Best's key industry trends and examines the property/casualty industry by segments and product lines.

For more information, visit A.M. Best's Web site at www.ambest.com