A London-based correspondent for A.M. Best reports that the U.S. insurance market will see interesting times over the next 18 months as it deals with both the financial crisis, and the remaking of American International Group Inc. (AIG).

The story details commentary from Vincent Dowling, founder of equity analysts Dowling & Partners Securities, who recently spoke at an Insurance Institute of London lecture at Lloyd’s on the state of the U.S. market.

According to the report, Dowling said that although the market had approximately $100 billion to $150 billion of excess capital in 2007, from $55 billion to $75 billion of that had been lost over 2008 due to the financial crisis.

Dowling went on to highlight how the financial bailout of AIG also will have a major impact on what happens to the U.S. market. Describing AIG as being in “disarray,” he said its plan to repay the loan by selling off assets and paring itself down to its core may benefit other players in the market, indicating the U.S. excess and surplus market as one area where Lloyd’s might be able to take over from AIG as market leader.

He highlighted combined ratios as being especially important, as the years 2006 and 2007 had seen the best combined ratios since 1955. Dowling said the industry is seeing a declining contribution from investment income, meaning an adequate contribution has to come from underwriting.

Another significant issue for the U.S. market, said Dowling, will be what happens to the economy, as well as the buying patterns of people and markets.

However, he added that there is a positive indicator in that, historically, the market has a rebounded to generate strong returns.

“The insurance/reinsurance market is one of the few places where something positive might happen over the next year,” Dowling said.

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