Another Insurer's WorldCom Revelation

By Susanne Sclafane

NU Online News Services, June 28, 11:43 a.m.EST?Everest Re Group, Ltd. disclosed its preliminaryestimate of loss exposure arising from the severely deterioratedfinancial condition of the WorldCom Corporation, putting the figureat roughly $30 million after tax recoveries.

The Bermuda holding company, with a principal executive officelocated in St. Michael, Barbados, said the resulting impact on itssecond quarter operating earnings would be 10 cents per share,while the net income impact would be 60 cents per share.

The company said that its loss principally reflects theimpairment of fixed maturity investment holdings, adding that thenet income impact would be partially mitigated by net realizedgains arising from unrelated investment portfolio actions.

Separately, Hamilton, Bermuda-based ACE Limited said exposuresarising from directors and officers liability, financial guaranty,and investments, would have no material impact on future operatingresults or book value.

While several European life insurers announced their holdings inWorldCom securities earlier this week, among U.S. p-c insurers,only Travelers Property-Casualty in Hartford and Birmingham,Ala.-based medical malpractice insurers, ProAssurance Corporationpublicly disclosed their holdings.

Travelers Property Casualty said it holds $83.4 million inWorldCom debt and ProAssurance put its bond holdings at $4.7million. Both insurers said that their exposures were not materialto operating earnings.

Speaking more generally about the U.S. p-c industry's exposure,Robert Hartwig, senior vice president and chief economist for theInsurance Information Institute, said it is principally on theinvestment side, adding that unlike the Enron situation, he did notbelieve there was any exposure to surety losses.

While there will be directors and officers liability lossexposure for some insurers as well, "there are [coverage] issueswith respect to the most egregious violations of public trust," hesaid. "There is at least the appearance of wrongdoing," he said,noting that if an insurer can show that an insured deliberatelymisrepresented itself, that would be grounds for suspending ordeferring D&O claims' payments.

WorldCom is a widely held company with institutionalshareholders among its investors, he said, noting that insurersrank as the fourth-largest group of institutional investors.

But "any individual insurer's exposure to WorldCom is going tobe small relative to its total asset base," said Mr. Hartwig,adding that he didn't believe that WorldCom investments posed athreat to the solvency of any insurer.

Matt Mosher, group vice president, property-casualty for A.M.Best in Old-wick, N.J., said Best is in the process of identifyingindividual U.S. insurer investments and distinguishing between thedirect and indirect impact of WorldCom on the industry.

Mr. Mosher said he believed actual investments in the companywould not have an impact on the industry's overall capitalization,but the indirect impact of further market declines could depressindustry capital in the second quarter.