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ATTACK ON THE U.S.

Saturday, Feb. 4, 2006

Insurers see loss topping $10-billion

By GUY DIXON

Thursday, September 13, 2001

The world's largest insurers have placed early, tentative estimates of at least $10-billion (U.S.) to $20-billion on losses related to terrorist attacks on New York's World Trade Center and the Pentagon in Washington.

Indeed, many within the industry compared the costs of Tuesday's attacks not with the worst man-made disasters, which have run into the hundreds of millions of dollars in claims, but with the worst natural calamities, which cost in the tens of billions.

The U.S. National Association of Insurance Commissioners (NAIC) estimated the total losses in Washington and particularly New York at about $10-billion. Damage from Hurricane Andrew in 1992 was nearly $20-billion, while the 1994 Los Angeles earthquake cost about $16-billion. The 1992 Los Angeles riots, the worst man-made disaster prior to this week's attack, cost insurers about $775-million.

Yet, NAIC tried to allay fears about the effect of Tuesday's attacks on insurers that many believe will be on par with Hurricane Andrew once all the lost business and liabilities are accounted for in the years to come.

"Policyholders can rest assured knowing that the insurance industry in the United States is an $850-billion industry with assets of over $3-trillion," said Catherine Weatherford, NAIC's executive vice-president, in a press statement.

"We have every confidence companies have the financial ability to keep the promises they've made to their policyholders in this instance."

She added, however, "it is too early to demonstrate precisely what the financial impact of this tragedy will have on the insurance industry. A disaster of this magnitude has never occurred in the history of American civilization."

NAIC's own New York branch office was in 7 World Trade Center building, which collapsed Wednesday afternoon, hours after the twin towers were hit by two hijacked airplanes.

Swiss Reinsurance Co., one of the largest insurance companies in the United States, said the dollar costs appeared to be in the same league as the hurricane-force storms that badly damaged Western Europe in winter of 1998-1999.

Those storms cost the company more than $700-million and the industry a total of about $6-billion.

Another major reinsurer, Munich Reinsurance Co., estimated its exposure Wednesday to the U.S. attacks at about $900-million. Giant Zurich Financial Services estimated its pretax losses from the attacks at about $400-million.

Large European-based reinsurance companies are being watched closely in the wake of the attacks, since these are the companies that effectively insure the insurers.

Some Canadian insurance companies also have reinsurance operations in the United States, although industry watchers didn't anticipate that the Canadian parent companies will take major hits.

"These kinds of very large losses tend to be spread around widely among very large international insurance and reinsurance organizations," said Neil Parkinson, a partner in KPMG LLP's insurance practice in Toronto. "So, it is pretty unlikely that very large losses like this will overwhelm any one company."

Still, Waterloo, Ont.-based Clarica Life Insurance Co. said Wednesday that, although it had only limited direct insurance exposure to the catastrophe, its life reinsurance business, a significant player in North America, "will be impacted, to a degree, by this devastation."

There is also the risk that the cost of huge claims among the reinsurers could ripple throughout the industry.

"Over the coming year, when Canadian insurance companies go to London, Geneva, Zurich and elsewhere to renew their reinsurance contracts for the year, they are very likely to see an increase in the cost of their insurance," said Stan Griffin, executive vice-president at the Insurance Bureau of Canada in Toronto.

"To the extent that gets passed on to Canadian consumers, that's unclear," he added.

Meanwhile, various other companies gave their own early estimates Wednesday for the damage in New York and Washington. Hours after the attacks, Chubb Corp. said it had "significant property exposure" of $100-million to $200-million.

Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the company foresees having to pay about 3 to 5 per cent of the total claims.

That could bring Berkshire's losses, along with those of General Electric Capital Corp.'s giant reinsurance business, to as much as $1-billion each.

Lloyd's of London is also expected to suffer losses in the hundreds of millions of dollars, although it sought Wednesday to discourage speculation.

"The situation in New York and Washington is evolving continually . . . Any calculation of the total losses so soon after the event can only be deeply flawed," cautioned Saxon Riley, chairman of Lloyd's of London, in a press statement Wednesday.

With files from Reuters and Dow Jones



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  • Six-month Memorial for Sept. 11 - U.S. President George Bush speaks from the White House. "The terrorists will remember Sept. 11 as the day their reckoning began," he said.

  • In Canada - Relatives of Canadian victims of the World Trade Centre attacks wonder why there's no six-month memorial here at home.

    CTVNEWS.com video reports



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