"We fought hard to get a federal backup in place on terrorism losses, but now we have to fight just as hard to get tort reforms in place," said Mr. Greenberg, chairman and chief executive officer of AIG in New York.

"Asbestos suits, class actions and unlimited punitive damages are among the greatest threats to our industry and economy," he added, speaking here yesterday at The "2002 Executive Conference for the Property-Casualty Industry," co-sponsored by Standard & Poor's, The Conference Group, and the Black Diamond Group.

"Liability costs have exploded," he said. "We had an asset bubble, which captivated juries and judges. They saw wealth grow exponentially on the asset side and began to build that into jury awards. The asset bubble has burst, but not the liability bubble it helped create."

Mr. Greenberg said that "the liability bubble has got to come down to earth if this industry is to have a future in many lines."

He explained that "if the tort system was more definable, insurer reserve estimates would be a lot more precise. But until the tort system's costs are made more definable by reforms at the state and federal levels, insurers are going to have to continue looking over their shoulders to see how losses are developing."

He added that while "those who have been injured deserve fair and reasonable compensation, damage awards should not be a prize all out of proportion to the harm done."

He said the uncertainty of the tort system has resulted in soaring insurance premiums, shrinking coverage, lower returns-on-investment for insurers, and increasing difficulty in attracting capital to the p-c industry, all of which are ultimately to the detriment of the public.

He also noted that despite double-digit price hikes, most classes of business are only now approaching 1992 rate levels, adding that the idea that we're in a "hard" market is relative if considered in a broader context.

In addition, premium hikes have not left insurers flush with extra cash, he noted. Instead, Mr. Greenberg said that low interest rates and a poor equity market, combined with rising liability losses and reserve deficiencies have mired the industry in a "profitless recovery."

Matters are made worse by the industry's single-digit return on equity that has made replacing the capital lost in the investment markets, Sept. 11 claims, and reserve boosts for prior-year liabilities very difficult.

"It's hard to raise capital just to fill a hole in your balance sheet," he said. "Why would anyone commit capital to that?"