It is said that the Lutine Bell at Lloyd’s of London has been rung 18 times in the last century, for such events as the sinking of the Titanic and the Lusitania.
But Denis Loring, who was on the floor of Lloyd’s on Sept. 11, heard the bell ring, this time tolling for the terrorist attacks on the World Trade Center.
Loring, executive vice president with RGA Financial Group in St. Louis, says Lloyd’s executives gathered around TV sets to watch events in New York unfold.
Loring says that to estimate claims Lloyds uses a realistic disaster scenario in which two 747s collide over New York City, but this goes completely beyond that.
Everyone will be impacted by this, he says, and for reinsurers it could be 6-8 weeks before there is a reasonable estimate of the dollar cost of damage and 6-9 months before there is a very accurate idea of these costs. “It will take a long time to have good numbers. This is the biggest loss the industry has ever seen,” Loring says.
Current estimates of costs to the insurance industry are in at least the $25 billion to $30 billion range, although according to one interview, an estimate as high as $50 billion is being floated for the industry as a whole.
Julie Burke, managing director with Fitch in Chicago, says the property-casualty end of the business will take the brunt of the financial hit, but that estimates of $2 billion to $3 billion for the life industry that have been quoted are not unreasonable.
Burke says Fitch is trying to get a sense of what companies are affected but “some of the companies are not necessarily sure where their risks lie.”
Interviews suggest that retrocessionaires, reinsurers of reinsurers, could be hard hit financially and that given the high incomes of many individuals in the Trade Center, insurers could face payouts of large death benefits from all kinds of life contracts. These would run the gamut from traditional whole life and term products to corporate-owned life insurance contracts.
Reinsurers say that catastrophe coverage, which limits large financial losses, and turning over risk to retrocessionaires will help limit their exposure.
David Atkinson, CEO of RGA Reinsurance and COO of Reinsurance Group of America in St. Louis, says one policy claim came in early last week, but it is still too early to tell how many claims RGA will receive.
RGA’s retention limit is in the in the $2million to $4 million range, he says, but very few policies are in the $4 million range because the company just went to that limit during the past year. The limit had been $2.5 million for the last three years and $2 million for ten years before that, he says, adding that the cat cover has a $1.5 million deductible and covers up to $100 million in losses.
During a call with the New York insurance department last week, according to Atkinson, insurers and reinsurers emphasized there were not liquidity or solvency problems. He said the industry might face a bad quarter with lower earnings but would not face long-term financial distress.
But getting a handle on what life reinsurance claims will be filed will not be easy, says Dennis Braziel, senior vice president and treasurer of Hannover Reassurance Company of America in Orlando. “There is not a printout of 6,000 people killed in the tragedy.”
Braziel says many issues will need to be sorted out. For life insurers and reinsurers, “this time, we don’t have a body and we don’t have a death certificate. That is going to make it complicated for the industry.”
Casualty issues will include a review of whether there was negligence on the part of airlines, airports and even the government, he adds.
For its part, Hannover Re of America does not take more than $1 million of exposure on any one life policy reinsured, Braziel says.
On a corporate level, Hannover Life Re is estimating $400 million in claims including both life and property-casualty reinsurance. A major part of those losses result from reinsurance programs Hannover Re had with American Airlines and United Airlines, the two airlines that hijackers used in their coordinated attack on American sites, Braziel says.
Hannover had no coverage on the WTC Towers, he says. The reinsurer was offered participation in a reinsurance program but declined because there was not an exclusion for terrorism. If Hannover had participated, the cost would have been enormous, he says.
Other reinsurers say they cannot yet estimate life reinsurance losses. At press time, ING Re in Denver and Transamerica Reinsurance in Charlotte, declined comment on potential losses. Swiss Re, in Zurich and New York, said the losses would be about $1.25 billion.
Lincoln National Corp. in Philadelphia estimates that life claims for its direct and reinsurance operations would be under $50 million.
Dean Davison, a spokesman for GE/Employers Re in Overland Park, says life reinsurance is “a modest part of the overall picture” of the $600 million pre-tax, $400 million after-tax loss, the reinsurer is anticipating.
Spokesmen for both AXA in Paris and Munich Re in Germany say they do not yet have estimates on life reinsurance costs.
At Munich Re, Rainer Kueppers, a company spokesman, said that in 2000, life reinsurance premium represented almost 22% of its revenue. Munich Re estimates its losses from the disaster to be $2 billion.
AXA spokesman Christophe Dufraux says roughly 75% of an estimated $300 million to $400 million in WTC claims are from reinsurance contracts, with the remainder from life insurance policies. At press time, there was not a breakout of what reinsurance contracts were related to life insurance.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 24, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.