NU Online News Service, Oct. 12, 11:57 a.m. – Ernst & Young’s Insurance Industry Services practice has released a report on the effects of the Sept. 11 terrorist attacks on New York’s World Trade Center and the Pentagon.
For life insurers writing variable products, direct losses may be exceeded by indirect costs related to the equity market volatility that has been exacerbated by this event, the report says.
A major direct impact on health and disability insurers is not expected because workers’ compensation benefits will generally be primary, the report says.
However, an increase in mental health claims is likely, and disability insurers may see a surge in stress-related and other claims from individuals covered under individual disability insurance policies, the report says.
Currently, it appears that most insurance companies will not separately identify the losses from this event in their income statement, but would be permitted to do so, the report says.
Companies that report the loss separately probably will have to separately disclose, both now and in the future, the effect of this event in the various footnotes that contain loss data information. Also, companies that initially separate the amounts relating to this event will most likely have to continue to separately report the changes in the estimate in subsequent periods until the changes or insurance-related liabilities become immaterial to the company, the report says.
The huge losses resulting from the disaster will have a dramatic impact on the tax position of an insurance company. In many instances, companies will find themselves in loss carryover positions for the foreseeable future, or subject to the alternative minimum tax, the report says.
Such a change in tax position will necessitate a change in the company’s tax strategy and the tactics used to implement that strategy?for example, a change from tax-exempt to taxable bonds, the report says.