He added that at a time of reasonably high market discipline, "to suffer this level of surprise and have a loss that I think for the first time we can't really quantify with a great deal of confidence, has probably unsettled our confidence levels a little."

Mr. Csiszar noted that in the past the industry had large losses--with Hurricane Andrew or the World Trade Center--when the market was down, "but we were able to put things right and there was a confidence that we could put things right."

His remarks were in line with what panelists had to say at a Global Reinsurance Forum session held earlier.

John Phelen, president and chief executive officer of American Re, said that Katrina raised many questions, including "the flooding and the confusion about what is covered--the biggest surprise is the storm surge."

He said the fact that storms occur is not a surprise, "but we are surprised that so many occur and by the intensity."

Patrick Liedtke, secretary general of the Geneva Association, said the industry "has been surprised by the uncertainty."

Our first lesson, he said, "is that we probably are not as smart as we think we are. The question is would we be much smarter? I doubt it."

He noted that "we might be a little better; we need to do more on the knowledge level."

One of the biggest problems, he said, was that "we knew about New Orleans. We knew it was below sea level, but we seem to have the wrong mechanisms in place--not only the insurance industry but in society, in the economy at large, how we deal with prevention and how we deal with the costs over time."

Kenneth W. Brandt, leader of the Americas and Asia Pacific P&C reinsurance unit with GE Insurance Solutions in San Francisco, told National Underwriter: "If you're looking for lessons learned, the lesson for me is more basic. We're surprised by the level of severity of Katrina and we're surprised at the frequency of hurricanes."

He continued that the industry was also surprised by the frequency of last year's four hurricanes in Florida, the devastation of the tsunami in Southeast Asia, the earthquake in Pakistan, and the devastation of the World Trade Center in 2001. "So the basic lesson here," he said, "to paraphrase an old bumper sticker, is 'surprise happens.'"

The question posed to the industry, he said, is how to proceed from here. "We have got to decide whether we are going to look at risk differently and risk management strategies that buy differently, sell our products differently, and assess [risk] on the basis that there will be another surprise next year," he said. "We can't continue to try to react; we have to build in programs that expect [surprise] because the 21st century has had a tough start for this industry."

GE's Katrina losses, the company said, were about $298 million after taxes. Mr. Brandt noted that about half the reinsurer's business in the U.S. is regional, midmarket. "In general," he said, "we've stayed out of the Gulf Coastal states and some of the wind areas of the regional business because we know we're exposed on that with the non-regionals."

Mr. Brandt, who met with more than a dozen customers during the annual meeting, said his clients have asked for an assessment of storm activity and model effectiveness.

"Our answer is simple," he said. "Everyone has to recognize that the models aren't ready for prime time." Whether they are reliant on an entire business model, risk management strategies, or pricing risks based on CAT models, "many are becoming too reliant on models, which aren't capturing all the exposures," Mr. Brandt noted. "That has to be factored in to the insurance community as a whole."

Rising costs also need to be captured in these models, he said. For the insurance community that means, "whether you're in Iowa or Denmark, Australia or Louisiana, your risk is going to have to be assessed with a fresh pair of eyes."

Within that context, he said his company will differentiate between regional and non-regional books of business, it will "have a conversation" with the regional book, get new versions of the models, "and we'll say, 'This is what the models are telling us and this is our input. What's your input?'" The next step is to "work through it and be rational--that's what [our clients] wanted to hear from us."

Steven J. Dryer, managing director and regional practice leader, North American Insurance with Standard & Poor's in New York, asked: "Why was there so much surprise? Individual companies will have different positions. And does our assumption about the industry's ability to understand its risk need to be changed? Does it need to be brought down, and if so, does that have an effect on ratings overall?"

Going forward, he said, the ratings agency will look closely at capital and earnings expectations. "If you're a company with a "Double-A" rating and we're taking a different view of the earnings computations, that could have some impact--you may not be a "Double-A," he said.

He added that a longer term issue is to raise the bar on risk management practices.

Thomas Upton, S&P's managing director, financial services ratings, North American Insurance, noted that companies first need to identify their losses and then look at previous risk tolerances to see how this event falls within those risk tolerances.

He added that they should look for any surprises that businesses might have correlated--a program written that perfectly correlates with another program. "Was it unexpected?" he asked. "Some might say they didn't know they were exposed to that degree."

An example, he said, might be oil rig insurance. "If I started insuring oil rigs and I got caught by that, perhaps my policies weren't as tightly worded as they should have been, and then it does go back to risk management," he explained.