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October 14, 2001 at 08:00 PM
NU Stock Analyst
Property damage estimates for the Sept. 11 terrorist attacks keep escalating. In early October, there were “guesstimates” exceeding $50 billion. Hurricane Andrew, the most costly insured loss in world history, was “only” $16 billion or so by comparison.
Now hear this. The towers of the World Trade Center have tragically fallen, resulting in some 6,000 deaths. But the insurance industry is still standing tall, united in its determination to settle claims without regard for exclusionary clauses in some policies that pertain to acts of war and terrorism.
The great majority of insurers are strong enough financially to ride out this disaster. But face it, loss estimates are still rising. I expect the end result will trigger a number of mergers, major and minor, and liquidations.
Given the backdrop of terrorist induced chaos, insurance stocks did badly–although relatively well–in September. The industry’s portfolio of 116 issues declined 5.28%. But that was a sparkling performance when compared with the major market averages, where the Standard & Poor’s 500 was down 8.18%, the Dow was off 11.08%, and the most quoted NASDAQ Composite collapsed 17%. (Just for the record, the NASDAQ Insurance Index was off only 0.57%.)
The best-performing sector by far was the brokers, which rose 6.57%.
The terrorist attacks have ruined the operating results of property insurers and reinsurers. That will help bring about rate increases–most likely hefty ones. Insurance brokers are in an enviable position. They should be able to see their top lines increase while expenses hold steady. The operating earnings of selected brokers could surge.
