Moody's Analyst Looks At WTC Effects

NU Online News Service, Sept. 20, 6:28 p.m. – The primary effect of higher than expected mortality and morbidity claims from the terrorist catastrophes will not cause material financial effects at most U.S. life insurers at this time, according to a leading analyst at Moody?fs Investors Service, New York.

“The U.S. life insurance industry will unquestionably face significantly higher than normal levels of mortality and morbidity claims as well as some investment losses following the terrorist attacks of last week,” Robert Riegel, managing director in charge of life and health insurance at Moody?fs, said yesterday during a teleconference call held to review the effects of the terrorist attack on the insurance industry.

The possible range of life insurance claims is $2 billion to $5 billion, which is less than 5% of the industry?fs statutory capital of over $200 billion, Riegel said.

However, some small, stand-alone life insurers with significant claim exposure or heavy concentration in the life reinsurance business could see losses that are more concentrated and significantly high relative to their size, Riegel said, noting that as a result some rating reviews may lead to downgrades.

But. at this early stage, Moody?fs does not expect the tragedy to result in a significant number of rating adjustments downward, he said.

The secondary effects of the tragedy, which include the more pronounced slowdown in the economy, increased investment losses and the downturn in the equity markets “will continue to put pressure on the credit worthiness of the industry,” Riegel said.

“For the most part, life insurance companies have good business diversification, solid liquidity position, strong earnings and capital base and prudent reinsurance programs,” he said. “As such, the unusually high level of claims will not materially weaken their financial strength and flexibility.

“Well diversified underwriting discipline and reinsurance programs should protect most life insurers from unusually high levels of losses,” he said.

“Individual company claim losses for this catastrophe will be determined by their lines of business diversification, market share by line of business and geographic region, policy sizes, insurance programs, as well as the recoverability of their reinsurance,” Riegel said.

“Although some companies are disclosing preliminary estimates of their claims and investment losses, we believe it?fs too early to accurately assess and define the companies?f exposures,” he said.

Given the nature and magnitude of the tragedy, he said “upward revisions are likely.”

Riegel said there are many types of individual and group policies that will experience claims, including: