Logically speaking, one might assume that 2003 should be a pretty good year for insurance companies. Premiums for almost every type of insurance are increasing by double digits for the third year in a row. The industry managed to secure a federal fund that exempts it from covering the bulk of another devastating terrorist attack. And recent bankruptcies among marginal insurers have cleared away some of the clutter from certain markets.

So are insurers happy? Let's say, they're not ecstatic. Sure, as an industry their stocks have managed to outperform the S&P 500 Index. But between the debacles at giants like Enron Corp. and WorldCom Inc. and the destruction of the World Trade Center at the hands of terrorists, carriers found themselves entering this year significantly low on reserves and basically unprepared for any unforeseen tragedies produced by Mother Nature or by man himself.

In February, American International Group Inc. decided to take advantage of the current favorable market conditions and post a fourth- quarter charge of $1.8 billion to boost its insurance loss reserves for potential liabilities from workers compensation, directors and officers (D&O) and healthcare coverage. The move startled analysts, and shares of New York-based AIG, the largest commercial insurer and arguably among the property/casualty industry's most respected underwriters, fell 7% in value.