2002: Capitalism At Its Best/Worst

Prediction: 2002 will be better than 2001 for insurers. With a combined ratio this year expected to top 120, virtually no profits, record underwriting and catastrophe losses, declining investment income, shrinking capacity and a recession underway, this is an easy prediction to make. It’s hard to imagine how things could get any worse. Even in the event of another major terrorist attack next year, the much-ballyhooed federal reinsurance backstop should cap the industry’s liability at about $10 billion. Insurers are headed in the right direction for 2002. Caution is the industry’s new watchword. Rates, retentions and limits are up, and the Feds are expected to come to the rescue. But higher prices, limits on exposure and a government backstop are not enough.