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Let the good times roll again


The recapitalization of the insurance industry began with a bang last month as Swiss Re and Zurich Financial Services kicked off an estimated $30 billion fund-raising spree by the sector.

Insurers, facing mammoth payouts after the September 11 attacks and a hefty decline in investment income, need to bolster their balance sheets. New reinsurance companies are being set up to take advantage of soaring premiums. And investors are lapping it up.

Within weeks, the insurance cycle has turned from bust to boom. A massive spike in premiums - three to four times, in some cases - has taken the market from the softest rates in years to the hardest.

With insurance stocks rising sharply, companies are rushing to take advantage of investors' fixation with the sector. Since the end of October, $8 billion of new capital has already been raised. According to Morgan Stanley estimates, there is at least another $18 billion to come in the next few weeks alone.

By early November over $4 billion had been taken from the market, with AIG issuing a $1 billion zero-coupon convertible and two of the savviest Bermuda-based reinsurers - Ace and XL - tapping investors for $1 billion and $819 million in new stock respectively.

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