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Terrorism boosts reinsurers
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November 9, 2001: 10:46 a.m. ET
Reinsurers unlikely to cover terrorism in future policies; Congress mulls bills.
By Staff Writer Luisa Beltran
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NEW YORK (CNNmoney) - The price tag of September's terrorist attack could hit as high as $50 billion with reinsurers expected to pay the most - and gain the most - from the catastrophe.
Estimates of insurance costs due to the attack range widely. The New York-based Insurance Information Institute expects losses of $30 billion while the American Insurance Association is forecasting $40 billion in insurance liability. But some companies, such as CNA Insurance, the nation's second largest property/casualty provider, are estimating $50 billion in claims, spokesman Charles Boesel said. And some analysts are saying the figure could even be higher.
"There are going to be all sorts of claims that are not settled for a long time," AIA spokeswoman Julie Rochman said.
Whatever the total ultimately is, one thing seems sure. Reinsurers - the companies that insure other insurers - will bear the brunt of the liability, industry analysts said, but eventually are also likely to raise premiums, which could give the whole industry a boost.
"Reinsurers are going to be paying most of these claims but they will benefit the most since they will raise prices the most," analyst Todd Bault, of Sanford Bernstein.
Reinsurers are expected to pay 40 percent to 50 percent of the Sept. 11 price tag, said Sandra LaFevre, spokeswoman of the Reinsurance Association of America. The huge payout is causing reinsurerance companies, which are not as regulated as primary insurers, to exclude terrorism from future policies, analysts said.
It is against federal antitrust law for insurers and reinsurers, like XL Capital Ltd., ACE Ltd. and Renaissance Re Holdings, to collectively decide against covering acts of terrorism. "It's up to each company to make their own decision," LaFevre said.
Bermuda-based XL Capital Ltd. (XL: down $2.97 to $90.85, Research, Estimates), which writes liability and reinsurance globally, has not decided whether it will cover terrorism in future policies, a source said. Insurers cannot estimate the damage from acts of terrorism and they are expected to exclude coverage for "man-made events" that are intentional, industry sources said.
"No one knows how to write a policy covering terrorism because no one knows how to price it," the source said.
Insurers are hoping for the enactment of legislation that will require government intervention in the case of a terrorist attack.
The House has introduced a bill, H.R. 3210, under which insurers would be expected to pay the first $100 million and the government would cover remaining claims. Under an expected Senate bill, insurers would pay the first $10 billion in claims and the government would pay the rest, the source said.
Sen. Paul Sarbanes, D-Md., chairman of the banking, housing and urban affairs committee, is expected to formally introduce a bill soon. The House Wednesday began marking up HR 3210 and a resolution could come next week, a source said.
XL Capital declined to comment. Despite repeated attempts, ACE could not be reached for comment.
P/C insurers
For the most part, most insurers have rebounded from September's attack, said analyst Al Capra of Putnam Lovell Securities Inc. The equity markets shut down for four days following the destruction of the World Trade Center. When the markets reopened on Sept. 17, the stocks of most insurers dropped significantly.
But now insurers are only off 3 percent from their pre-Sept. 11 levels, according to the Putnam Lovell Life insurance index.
Come Jan. 1 reinsurers are expected to raise their rates which will cause insurers to follow suit. Ultimately this will be passed on to consumers which will lead to higher insurance premiums, analysts said.
But all insurers stand to benefit from the rate increase. Insurers also stand to gain from the tenth interest rate cut this year but the effect of the cut will not be felt for two to three quarters, analysts said.
"Prices are expected to rise dramatically as a result of the terrorist attack," Capra said. "Typically for property/casualty companies, bad news tends to be good news."
ACE Ltd. (ACE: down $1.30 to $37.05, Research, Estimates) has surged nearly 40 percent since its close of $28.51 on Sept. 17. Hamilton, Bermuda-based XL Capital Ltd. (XL: down $2.97 to $90.85, Research, Estimates), which writes liability and reinsurance globally, has gained over 30 percent since Sept. 17. Pembroke, Bermuda-based Renaissance Re Holdings (RNR: down $0.06 to $97.95, Research, Estimates) has similarly risen more than 40 percent.
Of the property/casualty providers, American International Group has turned in the best rebound. New York-based AIG (AIG: down $1.00 to $79.87, Research, Estimates) , the top U.S.-based underwriter of property/casualty insurance, closed at $71 on Sept. 17 but has since gained nearly 14 percent.
Last week, New York-based AIG reported third-quarter earnings that tumbled 81 percent as it set aside money to pay heavy claims from the destruction of the World Trade Center. 
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