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Wednesday, 12 September, 2001, 09:43 GMT 10:43 UK
Insurers face record claims
Lloyds of London building
Lloyd's, the world's oldest insurance house, will probably bear much of the claims
The insurance industry could be in line for the biggest claims in history in the wake of the World Trade Center bombing.

The cost does not bear thinking about

Insurance analyst
Industry analysts have said claims might total up to $15bn (10bn).

Within minutes of the attack, shares in insurance firms plummeted over concerns of claims which are certain to amount to many billions of dollars.

Shares in reinsurance companies, to which front-line insurers turn in laying off risks, fared particularly badly.

And Lloyd's of London, the most venerable of all insurance houses, could be in line for "crippling" claims, industry experts said.

Largest losses possible

Swiss Re, the Swiss reinsurance giant, on Wednesday said it faced claims estimated at $1bn.

It said the losses would be "in the range of the 1999 European winter storms" and even though this was "one of the largest loss events possible" the company's financial strength was not in doubt.

German rival Munich Re estimated its liabilities at one billion euros ($906m; 619m) but said it too was strong enough financially to cope.

Credit rating agency Moody's said the total bill was likely to be in the range $10bn-15bn.

Lloyd's on Wednesday said it would take 24 hours to reach an initial estimate of the impact of the attack on its insurance market.

Widespread damage

In the US, unlike in many other countries, acts of terrorism are typically covered by insurers so long as the attacks are intentional.

The only exception is acts of war: since the US plane attacks have been characterised already as a warlike act, it is just about conceivable that, as events unfold, any insurance claims could be complicated.

A further complication is the fact that, since the World Trade Center was attacked before, by a bombing in 1993, many tenants may have no-terrorism clauses in their insurance contracts.

Insurance industry watchers say the World Trade Center itself is insured for about $1.5bn.

But the claims will cover not only the damage to the World Trade Center itself and any rebuilding plans, but also the huge cost to surrounding buildings from the blast and the subsequent collapse of both towers.

It will hurt Lloyd's but it is not going to break it

Insurance analyst

Airlines, too, will face large claims for liability as a result of the shutdown of the entire US air network, and future insurance policies will shoot up, observers said.

And although little is known yet about how many people have lost their lives as a result of the attack, life insurance claims are likely also to weigh on the insurance industry.

Time lag

"It will take a couple of months before we get some assessment of the true scale of the damages," one London-based insurance analyst said.

The claims could well be on the same scale as the claims from asbestos, the storms of 1989 and the Exxon Valdez tanker disaster

Andy Cook, editor Insurance Today

"But this is pretty expensive real estate. The cost does not bear thinking about.

"It is mostly commercial risk which is largely going to be picked up by the reinsurance trade."

Premiums in the reinsurance business are usually calculated on a twice-yearly basis, so are unlikely to knock onto the primary insurance market till the middle of next year.

Munich Re and Swiss Re "have to be first in the firing line" for the weight of the claims, the analyst added.

Claims 'covered'

Swiss Re said it was focusing its efforts on tracking down employees feared to have been in the World Trade Center when the attack took place.

Munich Re said the claims it faced were likely to be considerable.

But a spokesman said provision was built in "even for damages of this dimension".

"The financial strength of Munich Re has not been put into question," he said.

And Germany's Allianz convened a crisis meeting in Munich, not least to check the health and safety of its 400-odd staff who had been based in the World Trade Center.

Some firms were keen to stress the limits to their exposure to the disaster.

French insurer Axa said its exposure to non-life insurance in the US was "very limited".

Lloyd's in line

Lloyd's of London - which along with other prominent City of London buildings was evacuated after the attack - is also likely to be hit hard by the claims, of which perhaps 15% could be insured at the venerable London organisation.

"A lot of this business will have found its way to Lloyd's," said the analyst, noting Lloyd's broad exposure to the aviation industry.

"It will hurt Lloyd's, but it is not going to break it."

Others were more concerned about the implications for Lloyd's.

"Lloyd's has been getting stronger in recent years," said Andy Cook, editor of Insurance Today.

"But this could cripple it. The claims could well be on the same scale as the claims from asbestos, the storms of 1989 and the Exxon Valdez tanker disaster, which forced it into the problems it had before."

Lloyd's was very nearly brought to its knees after that string of claims, as its "names" - individual members of reinsurance syndicates - faced unlimited liability for a bill of nearly 8bn.

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