The Wages of Fear

Call it a mixed curse. The insurance industry is about to absorb the biggest loss in its history, with the total liability from the World Trade Center attacks now estimated at $40 billion or more. So how have some insurance stocks, such as AIG and Swiss Re, chalked up big gains since Sept. 10?

Perversely, investors figure that a large-scale disaster was just what many of the big insurers needed. Investment gains during the '90s bull market pumped up insurance companies' reserves, which meant that firms jockeying for market share could safely charge lower premiums. But low prices...

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