The shape of the insurance industry has been forever changed and prices are expected to rise following the terrorist attacks in the United States on September, says the chief ratings officer of a major bond-rating agency.

“When all is said and done, the long-term implications of the tragic events of Sept. 11, 2001, to the insurance industry will likely be far greater than the ultimate sum of the paid losses,” Larry Mayewski of New Jersey-based A.M. Best Co. said in a conference call today.

Mayewski said estimates of all losses to the insurance industry have varied from US$30billion to as high as US$70 billion. A.M. Best estimates have come in on the lower end and the agency has gone on record as saying the industry will be able to absorb the costs.

But the terrorists’ attacks will also see a general flight of investors to quality, greater consolidation in the industry, faster rate increases and a need for those insurers who will take on certain exposures and risk management, says Mayewski.

“We also anticipate changes to programs, program terms and conditions in both the primary and reinsurance markets, the entry of new specialty focused capital, the potential for a new generation of capital markets products and solutions and the possibility of governmental support or intervention of some kind.”

Rate increases will be prompted by the reinsurance market, says Beth Farrell, who is responsible for reinsurance companies at A.M. Best.

Rates have already risen in the property catastrophe market — by as much as 60%-70% in a few cases, she says.

“But it’s really not just rate increases. It’s also a change in the program structure and that will probably prompt even more of a variability and profitability.” Only limited capacity will be offered by reinsurers to cover some types of risk and they will be demanding higher prices for those services, she says.

Commercial rates had already been expected to rise 10%-20% before September 11. Another 5%-10% “is not out of the realm of possibility,” said Matt Mosher, A.M. Best’s head of property and casualty ratings group.

On the other hand, strapped property insurers may well see their return on equity improve next year and perhaps rise to double digits in 2003, says Mosher.