Sept. 11 losses not solely to blame for U.S. insurer woes, study shows

Losses stemming from the September 11 terrorist are not the only thing to blame for the terrible performance by U.S. insurers last years, says a report from Florida-based Weiss Ratings Inc. But an overall leap in claims costs is certainly the biggest factor is 2001’s US$9 billion industry loss.
Claims for the year were a record US$381 billion, an 86% increase over 2000, and reflects increases across many lines as well as September 11 losses.
Products liability was the biggest claim problem, followed by earthquake claims, which shot up over 400% more between 2000 and 2001. Medical malpractice and homeowners lines were also hard hit.
“The industry was hit hard by the staggering claims from the terrorist attacks,” says Martin D. Weiss, Ph.D., chairman of Weiss Ratings. “It would be a mistake, however, to blame all of the industry’s troubles on September 11. The economic malaise, the rash of corporate bankruptcies, and the market downturn have also taken their toll.”
In fact, losses were concentrated on about 34% of insurers, with three companies contributing 59% of the US$9 billion in total loss. These are State Farm Mutual Auto, Warren Buffet’s General Re and State Farm Fire and Casualty.
Unlike in other years, investment gains were not sufficient to offset losses on the claims side, Weiss notes. He also notes that the amount of junk bonds held by p&c insurers rose 92% between 2000 and 2001, to US$13.2 billion from US$14.4 billion.
“Some companies deliberately stepped up their purchases of junk bonds, but in most cases, they simply got caught with bonds that suffered downgrades or went into default in 2001,” he says. “And the junk bond default rate continues to rise in 2002.”
Of the 2,653 insurers rated by Weiss, 325 were downgraded, including Liberty Mutual, State Farm Mutual Auto and St. Paul Fire and Marine. Of the few upgrades, just 89 in total, notables include Allstate and Travelers Indemnity.