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BERMUDA: COMPANIES LIABLE TO TAP BERMUDA FOR COVERAGE

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HAMILTON, Bermuda-The exposure to claims in the litigious United States is driving companies from around the world to Bermuda's liability insurance markets.

While the increasing size of awards in Europe and Australia are prompting non-U.S. policyholders to buy more liability coverage for their domestic exposures, it is mainly concern over U.S. liability claims that is pushing international companies to buy coverage from Bermuda's excess liability and directors and officers liability insurers.

Even when European policyholders do buy additional coverage for their domestic exposures, they typically don't buy much in excess of the attachment point of Bermuda's insurers, Bermuda executives say.

Although the size of liability awards is growing in Europe, they still are not reaching the levels common in the United States, said Patrick J. Tolan, managing director of X.L. Europe Insurance, the Dublin, Ireland, unit of X.L. Insurance Co. Ltd. in Bermuda.

One of the main reasons for the difference in the size of the awards is the absence of punitive damages awards outside the United States, he said.

"Punitive damages are just not a factor" in Europe, he said.

Often in U.S. product liability judgments, the punitive damages far exceed the compensatory damages.

While there is some increase in demand for excess liability coverage and D&O coverage for risks outside the United States, the extra coverage often can be provided by policyholders' existing European insurers, Mr. Tolan said.

Five years ago, few European companies bought coverage up to X.L.'s current non-U.S. attachment point of $15 million, he said.

"Now some local companies are buying up to $25 million, but the coverage tends to be available locally and at a cheaper price than it was five years ago," Mr. Tolan said.

Non-U.S. companies facing higher exposures do not yet have to turn to Bermuda for high limits of coverage, said John Stites, president of Chubb Atlantic Indemnity Ltd., the Bermuda unit of Chubb Corp.

Approximately 10% of the submissions that Chubb Atlantic Indemnity Ltd. sees are from non-U.S. companies, he said.

"And that has been fairly consistent since we set up in 1993," he added.

While court awards against European companies may be getting larger, it is having little effect on Bermuda insurers, Mr. Stites said.

"They may be buying more insurance, but not to the level that they have to come to Bermuda," he said.

It will take time before the changing legal environments outside of the United States lead to more non-U.S. policyholders seeking the capacity that Bermuda provides, said Larry P. Lombardo, senior vp-excess liability at ACE Ltd. in Bermuda.

For example, in South Africa, individuals' rights have increased since the end of apartheid, he said.

"But it's usually a gradual process," he said.

While more U.S. lawyers are setting up offices in Britain and highlighting plaintiffs' rights when they advertise their services, there has still not been a litigation explosion, Mr. Lombardo said.

"There is a movement, and it is changing, but it's like waiting for a different generation to come along," he said.

Management-related incidents in Europe, such as the Maxwell pension scandal, also have led to heightened interest among European companies in buying D&O coverage, but again, it is a slow process, said Mark I. Herman, senior vp-D&O at ACE.

The majority of Europe-based companies buying coverage from ACE are buying it for their U.S. exposures, he said.

Policyholders based outside the United States buy about 20% of ACE's excess liability accounts and 15% of its D&O accounts, but many of those policies also cover U.S. exposures of the policyholders, Messrs. Herman and Lombardo said.

Often the few non-U.S. exposures that are covered in Bermuda arise from Australia, where awards are higher than most countries but still fall way behind U.S. court awards, said Mr. Stites.

"Financial institutions in Australia are frequently shopping for capacity in London and Bermuda," he said.

The Australian insurance market itself is highly competitive, but the growing amount of litigation there is leading policyholders to Bermuda to buy more coverage, agreed Mr. Lombardo.

Despite the slow growth in demand for coverage for non-U.S. exposures, Bermuda's insurers expect more business from international companies.

As more international trade agreements are cemented, the globalization of risks themselves will lead to more demand for coverage, said Mr. Tolan.

"With the GATT agreements in particular, more and more countries will be brought into the U.S. jurisdiction.*.*.that will prompt people to buy more insurance," he said.

The threat of U.S. lawsuits will be the prime reason for non-U.S. companies to buy coverage in Bermuda, agreed Clint Greene, senior vp at Starr Excess Liability Co. in Bermuda.

About 25% of Starr's business is derived from non-U.S. policyholders, he said.

And even risk managers with no exposures in the United States gradually will realize their local exposures are increasing to the level where they need more coverage, Mr. Greene said.

"They understand that things are moving in that direction, but they are also hoping that it won't," he said.