Insurers Mull Attack Losses

To put last weeks events into perspective, the 1993 World Trade Center bombing caused insured losses of $510 million, according to Loretta Worters, vice president of communications at the Insurance Information Institute, located fairly near the World Trade Center in lower Manhattan.

"That was just a small portion of the building," she noted. "This could be the most costly catastrophe ever."

In addition, the terrorist bombing of the federal building in Oklahoma City in 1995 cost insurers some $125 million. (The most expensive insured disasters to date were Hurricane Andrew in 1992, with losses of $16 billion, and the Northridge, Calif. earthquake in 1994 at $12 billion.)

Munich Re announced that their exposure from the terrorist attack is up to $1 billion euros (just over $900 million at current exchange rates), while Swiss Re issued a statement saying it expects losses in the range of the 1999 European winter storms–Lothar and Martin–based on a first and rough estimation. Later reports put Swiss Res possible maximum loss at $720 million. Allianz said it expects claims of up to $637 million.

ACE Ltd. in Bermuda announced that "an event of such unprecedented magnitude" would have a "significant negative impact" on the company. ACE estimated that the claims from the attack would reduce third quarter net operating income, after tax, by some $400 million. ACE Chairman and Chief Executive Officer Brian Duperreault said his company is in "an excellent position to weather this catastrophe."

Dean O'Hare, chairman and CEO of The Chubb Corp. in Warren, N.J., said that based on preliminary reports and estimates, the company believes it has significant property exposure in the World Trade Center, both for the structure and businesses housed in the towers. He added that Chubb's reinsurance will limit its pre-tax property loss to a range of $100 million to $200 million, subject to revision as more facts become known.

"In addition, the company will also pay customers' claims under business interruption, accident and workers' compensation coverages, but it is unable at this time to quantify the potential exposure for these losses," Mr. OHare said.

Lloyds also confirmed on Sept. 13 that its syndicates have a substantial involvement in the insurance of the World Trade Center complex, as well as that of United Airlines and American Airlines, which together lost four hijacked commercial passenger jets in the terrorist attacks. "However, because of the evolving nature of the situation and the numerous variables, Lloyds considers it unwise to attempt to quantify its own exposure at this time," the market said.

"The tragic events in the United States this week have generated the most complex set of insurance liabilities and interdependencies the industry has ever seen," said Lloyd's Chairman Sax Riley. "The situation is not static. Quantifying our involvement in terms of an exact total number is meaningless at this stage."

Underwriters and insurance brokers gathered in the Lloyds building in London on Sept. 13 to hear the Lutine Bell rung in memory of the victims of last weeks terror attacks. The bell was rung twice–to mark the beginning and end of a minutes silence that was observed by some 4,000 people throughout the 12-story building.

"We are not here today to discuss losses, but to pay our respects to the lost and the missing in this attack," Mr. Riley said at the ceremony. "We are also here to remember our colleagues and friends caught in this great tragedy."

Asked about the impact of the catastrophe losses on the solvency and ratings of property-casualty insurers, Matthew Coyle, a director for Standard & Poor's in New York, said: "I don't think we're talking about any insolvencies."

While Mr. Coyle was unsure yet what S&P would do in terms of adjusting ratings, he speculated that for large, diversified organizations, the ratings would not change, but that rating outlooks could be revised. For smaller, less diversified companies, there could be more changes, he said.

Weiss Ratings, Inc., of Palm Beach Gardens, Fla., believes that workers comp and business interruption insurers, not property insurers, will bear the brunt of property-casualty insurance losses likely to result from the terrorist attacks.

Based on a preliminary analysis, the impact on the property insurance industry is likely to be modest, the rating agency said in a statement. The firm indicated, however, that its analysis did not allow for commentary on commercial aircraft coverage or losses related to the destruction of a portion of the Pentagon.

Workers' comp or business interruption insurers are at the greatest risk since there is no limit to the amount of claims they might incur, Weiss said.

"In terms of property damage, this is roughly equivalent to the impact of a major hurricane. It is a blow to property insurers, but it is something they are generally prepared to absorb," said Martin Weiss, chairman of the rating agency, which concluded that a rash of property insurer failures is unlikely.

As for the future impact on the market, "we'll probably see an increase in premium rates and a decrease in coverage availability, especially for those properties that might be considered terrorist targets," Mr. Weiss said.

In a research note released on Sept. 13, Kenneth Zuckerberg, vice president-equity research for Dresdner Kleinwort Wasserstein in New York, listed Chubb, St. Paul, ACE and XL Capital among the publicly-traded insurers whose results would be significantly impacted by the disaster.

He added that while this is a terrible event from the standpoint of near-term earnings, a high level of industry losses will "undoubtedly be a positive catalyst for commercial and reinsurance pricing. Based on this view, we believe that p-c stocks should rally."

The terrorist attacks prompted the cancellation of two major p-c industry annual meetings. One was the annual convention of the National Association of Professional Surplus Lines Offices, which had been scheduled for Sept. 12-16 in San Antonio. Another was the National Association of Mutual Insurance Companies, which cancelled its 106th annual convention, scheduled for Sept. 23-26 in Washington, D.C.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 17, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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