Canadian Underwriter

WTC terror attack could produce insured loss of US$20 billion

September 12, 2001   by Canadian Underwriter

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The tragic events which unfolded early Tuesday this week when two of four hijacked commercial jetliner planes were deliberately crashed into the twin towers of the World Trade Center (WTC) in Manhattan, New York City could produce an insured loss as high as US$20 billion, several insurance industry bodies say.
The suicide terrorist attacks on the WTC, which resulted in Buildings One, Two and Seven collapsing within hours after the impact of the aircraft, was part of a larger terror campaign intended to destroy the White House and the U.S. president’s jet, Airforce One, according to U.S. government security officials. The third hijacked plane did crash into the westside of the Pentagon while the fourth aircraft crashed into an open field. While recovery operations in New York City’s financial center and the Pentagon continue, the final death toll is expected to run into thousands.
Early reports suggest that the WTC, which housed several insurance company and brokerage offices including Guy Carpenter, Marsh and AON, was insured for US$1.5 billion. However, losses relating to insured businesses, the aircraft in question, business interruption claims, workers’ compensation and auto will boost the value of claims into the billions of dollars range, industry spokespeople say. "It is safe to assume claims will be in the billions [of dollars]," says Robert Hartwig, chief economist of the New York-based Insurance Information Institute (III).
Other industry bodies such as data-collection agency, the Insurance Services Office Inc. (ISO), and the National Association of Independent Insurers (NAII), say it is too early to determine a likely insured loss figure. With reinsurers expected to absorb a significant portion of the insured loss, the Reinsurance Association of America (RAA) comments, "at this time, no collective information is available on the financial impact on reinsurers resulting from the loss of property and life associated with the New York catastrophe. The impact, if any, on an individual company will be difficult to assess in the next few days."
However, all of the industry bodies believe that the WTC loss will likely top the US$3 billion payout resulting from the Piper Alpha oil platform explosion that occurred off the coast of Britain in 1988 this had been the most costly man-made disaster insurers had faced to date.
The Chubb Corp. has issued a press statement saying that the company has a significant property and business exposure to the WTC. Company CEO Dean O’Hare adds that this will be limited to between US$100 million and US$200 million due to reinsurance coverage. Chubb will likely face additional business interruption and accident and workers’ compensation exposures. Kingsway Financial Services Inc. has also issued a media statement saying it does not expect any financial loss as a result of the WTC devastation. Kingsway adds that all staff of its Avalon office have been safely accounted for. Swiss Re, the world’s second largest reinsurer, places a rough estimate on the insured loss it faces to be "in the range of the 1999 European winter storms Lothar and Martin," which cost the company about US$1 billion. Another reinsurance source believes that the financial impact on insurers could be far greater than many expect as U.S. commercial policies seldom hold exclusions against losses arising from terrorism actions. Most reinsurance contracts do include such exclusions, he adds. Furthermore, he says the insured exposures on the four jetliners will likely prove dearly costly to insurers, who face exposures on hull, cargo, liability and business interruption claims. "We could see some insurers running into financial difficulty."
Reinsurance brokers, Guy Carpenter & Co Inc., which was perhaps the hardest hit by the WTC travesty as its headquarters was located on four floors within Building Two, believes that most of the staff had been successfully evacuated, and are now accounted for, says Don Callahan, a vice president at the firm’s Canadian office. "Our home office is gone. We’re currently in the throws of implementing a disaster recovery plan based out of our office in Philadelphia. Most of our critical business functions are expected to be back in place over the next day or two."
Callahan also believes that the potential insured loss on the aviation side could be "staggering", while the physical property of the WTC could run into billions of dollars on its own.

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