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Wednesday, 10 July, 2002, 08:23 GMT 09:23 UK
Munich Re raises terror provisions
Workers clear the site of the World Trade Center, AP
The cost of the attacks is still rising
The world's largest reinsurer, Munich Re, has set aside an additional $500m (323m) to cover claims related to last year's attacks on the World Trade Center.

Munich Re chairman Hans-Juergen Schinzler
Munich Re chairman Schinzler has described American Re as a "problem child"
The new amount brings the group's total provisions for attack-related claims to 2.7bn euros.

"With this adjustment, Munich Re has made provision for possible claims which may arise in time even though not yet reported and which are thus difficult to estimate," the group said.

Munich Re also said it would inject an additional $2bn into its troubled US unit, American Re.

The news sent Munich Re's shares 4.4% lower when the markets opened as traders ignored what the group said had been an otherwise healthy performance during the first six months of this year.

Profits so far have been bolstered by rising reinsurance prices and by 4.7bn gains from the unwinding of cross-holdings of shares with the insurer Allianz, Munich Re said.

Problem child

The cash injection into American Re should enable the unit to return to profits "immediately", Munich Re said.

The US subsidiary, which was acquired in 1996 for $2.5bn, has never lived up to initial expectations.

Losses and low reserves which forced Munich Re to step in with a $1bn bailout last year led Munich Re chairman Hans-Juergen Schinzler to nickname the unit the group's "problem child".

"The realignment of American Re has included the review of our entire portfolio with regard to claims development and provisions," American Re chief executive and Munich Re management board member John Phelan said.

See also:

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