Canadian Underwriter

Several insurers/reinsurers reveal WTC loss estimates

September 13, 2001   by Canadian Underwriter

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A number of global insurers and reinsurers have released early loss estimates totaling more than US$4 billion relating to the tragic devastation of New York City’s World Trade Center (WTC) as a result of terrorist attacks carried out this past Tuesday.
The losses in question relate to destruction of physical property and business exposures, as well as four commercial jetliners which were destroyed after being hijacked by the terrorists and used as flying bombs to crash into the twin towers (buildings One and Two) of the WTC. One of the four jetliners crashed into the westside of the Pentagon building in Washington, D.C. while another came down in a rural area of Pittsburgh, Pennsylvania. Insurance industry preliminary figures suggest that the overall insured loss resulting from these events could range from US$15 billion to as high as US$30 billion. However, several industry organizations and companies, namely Lloyd’s of London which admits to having a high loss exposure through the WTC and United Airlines and America Airlines, say it is too soon to quantify exposures at this stage. “The tragic events in the U.S. this week have generated the most complex set of insurance liabilities and interdependencies the industry has ever seen. The situation is not static. Quantifying our involvement in terms of an exact total number is meaningless at this stage,” says Lloyd’s chairman Sax Riley.
American International Group Inc. has produced an estimate of its total pre-tax loss relating to the terrorist attacks to be around US$500 million. Company chairman Maurice Greenberg says AIG has established crises teams to operate on a 24-hour basis, “and they are prepared to process claims”.
Although a final analysis of insurance and reinsurance exposures is currently not possible, Europe’s largest insurer Allianz Group expects the attacks on the WTC could translate to a net loss to the company of about US$630 million. “This affects current forecasts on annual results considerably,” the insurer states. Board of management member Helmut Perlet adds, “such events illustrate the necessity of our standard cautionary notes for catastrophes and turmoils in the capital markets when we make earnings projections.”
CGNU plc. says it has reviewed the group’s worldwide exposure to potential claims stemming from the WTC attack, and expects that the total net liability of the company will not exceed about US$50 million. CGNU notes that claims may arise from accident and life policies, business interruption, travel and some exposure the company has through aviation covers.
Zurich Financial Services has issued a media statement describing the terrorist attacks in the U.S. as “senseless acts”. The insurer believes that its net pretax loss will be less than US$400 million. “Estimates of Zurich Financial Services claims are premature and will take some time to develop.”
The SCOR Group has placed its loss estimate at between US$150 million to US$200 million, net of retrocession cover and protections. “This unprecedented tragedy will have no impact on the financial strength of our group or on our underwriting capacity,” the company says.
The Bermuda-based reinsurer/insurer operations of ACE Ltd. and XL Capital Ltd. both expect that losses from the WTC travesty will impact on their financial results for the current financial year. XL estimates its loss exposure to be in the order of US$600-700 million, net of reinsurance recoveries. Company CEO Brian O’Hara says claims are most likely going to be focused on aviation, property and business interruption, and its reinsurance coverages. “Our customers should rest assured that XL has ample balance-sheet strength and liquidity to pay claims on a timely basis.”
ACE CEO Brian Duperreault says, “we are assessing the impact on ACE, as we must, and we are in an excellent position to weather this catastrophe”. The company’s estimated loss will, however, have an impact on its third-quarter financial results. “As a result of these events, we estimate that third-quarter net operating income after tax will be reduced by approximately US$400 million.”
Another Bermudan reinsurer Max Re Capital Ltd. reports that the WTC losses will not have a significant bearing on the company’s financial position. “We want to assure our clients, brokers and service providers,” says chairman Bob Cooney, “that Max Re is continuing to conduct business as usual in the face of these devastating events”. Commenting on the what has since been labeled as the costliest man-made disaster in history, Cooney points out that claims are going to aggregate to many billions of dollars and stem from a wide variety of coverages. “The flow of these claims into the reinsurance market will be complex and take months to accurately quantify.”
The world’s largest reinsurer, Munich Re expects its loss commitments will be in the order of US$900 million. “Munich Re will assume substantial claims costsand [losses] will derive mainly from the lines of aviation, buildings, business interruption, life and workers’ compensation insurance,” says chairman Dr. Hans-Jurgen Schinzler. The anticipated loss will have a “significant impact” on the reinsurer’s net profit for the current financial year, he observes, although the disaster will not affect the “solidity of the Munich Re Group”. The largest loss Munich Re suffered in relation to its portfolio was the 1906 earthquake in San Francisco. Dr. Hans-Jurgen Schinzler adds that, “in view of the complexity of the events, it is naturally too early to know and communicate details of the insurance covers and the related reinsurance protection”.
Hannover Re estimates that WTC related losses will have a “negative effect” of about US$360 million on the company’s 2001 financial results. Chairman Wilhelm Zeller notes that the U.S. market accounts for roughly 52% of the company’s annual premiums. “Which means that we will be affected by losses in various lines of insurance as a result of these terrorist acts in the U.S.”
Hannover Re is a participating underwriter of covers for both United Airlines and American Airlines, he says. “These policies not only cover the loss of the aircraft, but also the bodily injury and property damage caused by the four crashes. The limits of coverage of these policies for third-party liability are US$1.5 billion per event. Due to the four separate attacks, this will result in four separate loss events.”
Zeller expects that claims arising from New York and Washington will exceed the individual cover limits. In addition to property damage and business interruption coverage of the WTC, insurers also face individual claims along these same lines from approximately 1,200 firms located within the complex. “At present, there is no concrete information relating to the insurance of the other damaged buildings,” he adds.