Extreme acts of nature have beenfelt globally over the last 12-18 months.

• The February 2010 Chilean earthquake was ranked as the sixthlargest ever to be recorded by a seismograph.

• New Zealand's South Island (Christchurch area) sufferedsignificant quakes in September 2010 and again in February2011.

• Japan's March 2011 magnitude 9 Tohoku earthquake and tsunamicombined is the most powerful geological event in that nation'smodern history.

Each of these catastrophic events resulted in significantfatalities, property damage and other interruptions to normalcommercial and personal affairs.

In addition to these reminders of nature's destructive powersglobally, this year in the United States we have witnessed savage tornado activity across the lower central and southeaststates. These events are responsible for more than 500 deaths;historic flooding on the Mississippi and other U.S. river systems;increased levels of convective storm (tornado and flood)damage. In addition, wildfires rage in the southwest, with onedescribed as the second worst in Arizona history. Another fire,threatening New Mexico's Los Alamos National Laboratory inJune, prompted evacuations there.

These events are making this period one of the more memorablenatural-disaster times, even though no hurricanes have made U.S.landfall.

Domestic E&S Market Impact

Certainly, these events, like those before them, representsubstantial aggregate exposures to the global insurance industry.As reported earlier this year, estimates of insured losses for the Japan earthquake ranged from $15 billion toas high as $35 billion. These estimates exclude any lossesrelated to the crippled nuclear reactors.

By comparison, according to the Insurance Information Institute,the current record insurance payout for an earthquake is for the1994 Northridge earthquake in California, at $22.5 billion ininsured losses in 2010 dollars. Hurricane Katrina led to totalinsurance payouts of $41.1 billion.

For the recent disasters in the United States, some insurancecompanies have been tracking and reserving claims as quickly asthey are made. This is a time when we, as an industry, can serveour collective customers well in their time of need.

We currently estimate that we have received 80-90 percent of theclaims we will receive overall from the second-quarter storms.While the domestic E&S industry has reported greater thanaverage storm losses for the first half of the year, there is noreason to sound any alarms for the excess-and-surplus linesmarketplace. Differences in the type and concentration of businesstypically written in the E&S market have meant that extremeU.S. storm events in the first half of 2011 impacted admittedmarkets more than E&S markets.

Moreover, the key to controlling losses is tobe judicious in extending aggregates and in writing for specifickinds of risks, i.e. wind damages. The relative position ofdifferent underwriters will also be impacted by how aggressive orprudent their risk-management modeling has been—for example,working with a 250- to 300-year return plan benchmark, versusselecting a 100-year return for planning reinsurance purchase andaggregate management.

Indirect impact: The reinsurance market

Thus, any impact of disaster-related losses on domestic propertyand casualty insurance availability and pricing in E&S marketsis largely due to pressures on the global reinsurance marketplace.Well-run domestic carriers that manage their books prudently shouldbe well situated when negotiating new catastrophe-reinsurancecoverage on the pricing. Capacity, however, may become anissue.

A recent study by Morgan Stanley, reported June 2011 onpropertycasualty360.com, noted that, while down from July 2010, theproperty and casualty insurance industry still has a strong excesscapital position. Morgan Stanley did note that property pricing hadinflected upward subsequent to the Japan earthquake, a trend itsees in place through the first quarter of 2012.

Taking the other side of the pricing-capacity tandem, anotherstudy, by New York-based reinsurance intermediary Holborn, suggeststhat the earthquakes referenced earlier and other global events,along with the U.S. tornadoes, will serve to tighten capacity more than pricing for the U.S.property-cat reinsurance market.

The industry maintains financial strength to execute on ourcommitments.

While the global insurance industry has recently sustainedsignificant losses, any projections of future market events for theE&S industry must be viewed in the context of what has been,and still is, an extremely competitive market. The industry remainsovercapitalized at a time of generally weakened demand. The E&Scarriers are equally as strong as our admitted colleagues.

Further, recent history suggests that catastrophe events tend todraw new capital into the marketplace. We must carefully watch thepotential for the next hurricane season to change the dynamicspreviously discussed, as we experienced in 2005 when fourhurricanes hit Florida in a single year.

Well-capitalized underwriters, following prudent catastrophemodeling with a robust enterprise-risk-management controlenvironment, should continue to serve insureds well.