Attacks Won't Cripple Insurers, But Issues Are Complex
By CATHERINE TAYLOR
Of DOW JONES NEWSWIRES
LONDON -- Paying claims for the world's worst terrorist atrocity won't
cripple the world's insurance industry, industry experts said Friday, but it
will be a long and complicated process deciding exactly how and by whom the
sequence of events is covered.
In a statement earlier Friday, ratings agency Standard & Poor's said it was
too early to quantify the financial impact of the attacks on America, "but
the insurance industry is strongly capitalized and can withstand an enormous
financial hit without threat to the stability of the system overall."
Some analysts and industry players have put the total cost to insurers of
the events at more than $20 billion.
But what's already clear is that the world's major insurance and reinsurance
companies aren't any making bones about their exposure to the tragedy, but
are instead coming forward with large estimates of losses they will face.
Friday, Lloyd's of London (U.LYL) insurance market company Wellington
Underwriting PLC (U.WLL) said it faces up to $30 million in claims, while
fellow Lloyd's insurer Cox Insurance Holdings PLC (U.CIH) said it is too
early to give an estimate, although any loss would have a "material impact"
on 2001 profitability.
To date, estimates from major players like Swiss Reinsurance Ltd. (Z.REI),
Munich Reinsurance AG (G.MUV), Chubb Corp. (CB) and Berkshire Hathaway Inc.
(BRKA) stand at around $4 billion.
Lloyd's of London, the world's largest insurance market, hasn't yet released
a total figure for losses, but said Thursday that its exposure will be
"significant". Sector-watchers expect the 300-year-old market's exposure
could conceivably be as high as $5 billion, potentially driving some of its
108 syndicates out of business.
In its statement, Standard & Poor's said total losses declared by the
industry so far will inevitably rise. "Once insurable losses exceed $10 or
$15 billion, we would expect to see a significant impact on balance sheets
of individual insurers," the ratings agency said. "However, the totals would
have to exceed $50 billion before we would begin to worry about the
insurance system," Standard & Poor's said, noting "insurance losses from the
latest tragedy are spread among many of the world's largest and strongest
insurers."
One industry source told Dow Jones Friday that one of the most complex tasks
the industry now faces is deciding whether the attacks should be treated as
multiple, or single events. "Depending on what agreement is reached, that
will have an impact on the processing of the claims and indeed the scale of
the claims," he said.
The insurance world operates a complex web of risk-sharing agreements.
Primary insurers, who deal directly with customers, negotiate a certain
cut-off point for exposure to single events they insure, above which they
farm out exposure to other insurers. So if the terrorist attacks are classed
as a single event, the primary insurers may have to pay, say, only the first
$500 million of exposure, with contracts obliging other insurers meeting the
rest of the cost. If they're classed as multiple events, however, then the
primary insurers will face much higher costs.
"There is likely to be a lot of debate about the individual wording of
policies, and what risks they do and don't exclude," the industry player
said.
As Wellington said in its statement Friday, "Apart from the appalling human
tragedy, the events of Tuesday have triggered a series of immensely complex
issues which will profoundly affect the way in which insurance business is
carried out."
-By Catherine Taylor, Dow Jones Newswires
