NU Online News Service, April 26, 11:39 a.m. EDT

The Icelandic Volcanic Eruption will have no material impact on the insurance industry, Moody's Investors' Service said.

The firm's Weekly Credit Outlook said in the wake of the April 15 Eyjafjallaj?kull volcano's ash cloud eruption there was significant disruption for individuals and businesses reliant on air travel. "However, the extent to which the insurance industry will cover losses incurred from this disruption is expected to be limited because business-interruption claims will not be generally covered."

The firm said business-interruption insurance claims are only valid for airlines and airports if there has been physical damage to their property, and this has not been the case since rapid closure of airports prevented any aircraft losses.

Moody's added that this physical damage prerequisite in fact extends to other commercial lines' insurance. Moody's mentioned Munich Re's report that business-interruption claims arising from the nondelivery of air-freight shipments are expected to be extremely limited for the insurance industry as covers are generally triggered only if an interruption results from material damage.

Munich has also said claims in agriculture or property damage caused by corrosion or dust deposits are not expected either, as the concentration of ash in the cloud is too low.

An area from which claims will certainly emanate, said Moody's, is travel insurance, but the impact on the industry should be relatively muted for three reasons.

o First, travel insurance is typically a small business line for medium- and large-sized insurers and therefore for the industry as a whole.

o Second, it is not clear that all travel policies for individuals will be triggered. As the Association of British Insurers (ABI) has clarified, a volcanic eruption is not a specific insured event that is covered in policies, although depending on how comprehensive the cover is and the terms and conditions, delay and abandonment may be covered by the insurer.

o Third, if travel policies do respond, the limits are usually fixed and relatively small. In turn, any, not legally required, ex gratia payments made by insurers for reputational reasons are likely to be small.

Moody's said with the expectation that claims arising from this event will be limited, "no material credit implications are envisaged for the insurance industry."

In the future, the rating firm said it is possible that insurers could enhance revenue by developing commercial products to cover the sort of disruption caused by the volcanic ash, "although the ability to assess this kind of natural catastrophic risk would be key to generating profits."

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Minimal Impact To Insurers From Icelandic Ash Problem: Moody&#039;s

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