S&P: Lloyd's To Feel First War Impact

By Michael Ha

NU Online News Service, March 20, 12:00 p.m. EST?The initial impact on insurers from the war in Iraq will fall mostly on Lloyd's of London, according to a new report by Standard & Poor's Ratings Services.

Steven J. Dreyer, practice leader for insurance ratings at S&P, said, "Lloyd's is really the only ongoing market for the war risk," identifying war-related insurance risk in the marine and aviation areas.

In terms of the underwriting focus, S&P expects Lloyd's to take a very short-term risk-by-risk approach--"and we would expect high prices," said Mr. Dreyer, who co-authored the new report on the war's impact.

"The demand for war risk coverage is surging right now," said Robert Hartwig, senior vice president and chief economist at the Insurance Information Institute in New York

In general, he said, "there is an absolute agreement among insurers that the war against Iraq is bad for the insurance industry." In addition to marine and aviation interests, current military action in the Persian Gulf creates the potential for enormous losses from possible retaliatory terror attacks and an uncertain investment environment, he noted.

The price of terrorism coverage will rise even if the war ends quickly because the possibility of further terrorism will linger, said Mr. Hartwig.

The geo-political uncertainty associated with the military action will have a detrimental impact on the investment environment worldwide, which could further hurt insurers' ability to offset underwriting losses with their investment profits, he said.

On the other hand, if the war ends quickly and successfully, clearing away the uncertainties, insurers could see an uptick in the investment market, as has been seen in the days leading up to the war, said Mr. Hartwig.

Regarding ratings on general commercial insurers, S&P doesn't yet see any major impact from the war, according to Mr. Dreyer. But ultimately, "we would be concerned about the war's impact on various economies--what it does to the demand for insurance generally, and, importantly, what the war does to the investment performance of the industry," he said.

In the end, Mr. Hartwig said, insurers are all sharing the pain of the war. "The war jitters have slowed the global economy, and when the business investment picks up again after the war, insurers will benefit again," he said.

Mr. Dreyer also noted that some insurers have already commented on potential opportunities in terms of the rebuilding phase in Iraq, "which is looking way ahead, I realize," he said. But there would be potential for insurers to provide coverage for such rebuilding efforts, "which would also depend on to what extent the rebuilding would be led by the United States and the Western coalitions."

Special Reports /

S&P: Lloyd's To Feel First War Impact

Related Stories

Recommended For You