NEW YORK–Skepticism about insurers' risk management capabilities prevented their sector from fully recovering lost capital after the 2005 record storm season, an insurance executive said today.
The comments came from Kevin Kelley, chief executive officer of Lexington Insurance Company in Lexington, Mass., speaking at seminar sponsored by American International Group on homeland security issues.
Mr. Kelley said property-casualty insurers only recouped about 27 percent of lost capital from common equity offerings following the 2005 storms.
That figure compares to 50 percent from the Sept. 11 attacks in 2001 and 44 percent from Hurricane Andrew in 1992.
"Wall Street did not have great confidence in the kind of exposure some of these companies had to hurricane loss," said Mr. Kelley.
"The ability to reload was much greater in the previous two events," he said.
Speakers at the event called for an extension of the Terrorism Risk Insurance Act this year.
Mr. Kelley said terrorism is a risk that is so uncommon that it remains difficult to insure.
He estimated that losses from a nuclear, biological, chemical or radiological attack on New York could total $778 billion.
"That is way more than the industry has in capital today," said Mr. Kelley.
The biggest loss component in terms of insurance lines would be workers' compensation, he said.
New York State Deputy Secretary for Public Security Michael Balboni said that 85 percent of probable terrorist targets are currently in private ownership, which makes public participation in prevention efforts crucial.
He said a seamless connection among federal, state and local authorities for responding to public emergencies such as terror attacks is currently lacking.
Jack Cloonan, president of Clayton Risk Consultants, warned that the United States cannot be complacent despite six years without a terror attack on our soil.
He said Al Qaeda takes a much longer term view of its role on the world stage, and operates from the point of view of decades.
Mr. Cloonan also predicted the next attack on the U.S. will be of a relatively simple nature such as suicide bomber rather than any elaborate weapon of mass destruction approach.
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