Half of the $2 billion-plus capital likely to be lost by the Bermuda insurance market as a result of the events of September 11 was replaced within three weeks.

Marsh & McLennan and RenaissanceReled the response to an acute shortage of property and casualty capacity in the wake of events.

Marsh will establish a new Bermuda-based reinsurer, Axis Specialty, with $1 billion of insurance and reinsurance capacity for property, aviation, war and political risks. Axis will begin underwriting in the fourth quarter. RenaissanceRe will increase the capital available to a subsidiary to $100 million.

Bermuda may be the locus for significant new capacity in the wake of the attacks, much as it was in the early 1990s, after Hurricane Andrew similarly dried up the property catastrophe market. Bermuda may be the only world insurance center in a position to respond to shortages of property and catastrophe cover. European insurers declined to cover catastrophe risk in the weeks after the events of September 11. To Lloyd's, continuing losses have added an estimated $1.9 billion in WTC claims. The New York market has more pressing concerns.

Bermuda is heavily concentrated on the property and casualty side; its life insurance and reinsurance markets are nascent. It writes very little workers' compensation or group life. Bermuda will therefore be shielded from the unusually high level of life insurance claims.

Among the primary insurers and larger reinsurers, Bermuda's Ace ($550 million), PartnerRe ($375 million), and XL Capital ($600 million to $700 million) have announced that they will face the lion's share of the claims. RenaissanceRe has indicated that its claims level will be significantly smaller than would be indicated by its catastrophe reinsurance market share.

The Bermuda market has not been exempt from the caution being displayed by the ratings agencies, which moved quickly to place a number of insurers and reinsurers worldwide on ratings watches. Alone among the Bermuda companies, Trenwick's S&P rating dropped a notch to A-. The tenor of the majority of ratings watches is that, should initial claims estimates prove reliable, the watches will be removed.

Anecdotal evidence in the European markets prior to the end of September suggested that rate increases of the order of 300 percent to 500 percent were being introduced on catastrophe lines. Clients' ability to pay may mitigate such extraordinary increases, notably in the aviation sector.

The falls in global stock markets before and after the WTC attacks will have had an impact on the equity element of insurance and reinsurance companies' stock portfolios. The effect of the market falls will be reflected in third-quarter earnings statements, which will make baleful reading.

Most Bermuda insurers and reinsurers have share repurchase programs in place. Soon after September 11. Max Re allocated $15 million for that purpose. Two weeks later, it authorized a further $25 million.

XL Capital deferred a small private placement of senior debt securities due to have settled immediately after the WTC attacks. Two Asian deals being managed by Centre (Bermuda) were frozen, pending resolution of the ratings watch placed on the company.

Attempts by American insurers to convince Congress to tax Bermuda and other insurance companies appear likely to fail, this time definitively. Given global conditions, attempts to curtail international trade with allies are likely to fall on deaf ears in the Bush administration.

International financial services provide the majority of Bermuda's foreign exchange earnings. That percentage is only likely to increase in the wake of the events of September 11. If the Bermuda insurance market continues to respond positively to shortages of cover, Bermuda may emerge as an even more important player on the world stage.

Coincidentally, Bermuda appointed a Supervisor of Insurance on October 1, bringing the regulatory system in line with the highest international standards.

Roger Crombie is a Bermuda-based journalist who writes frequently for Risk & Insurance.