Group Life Market Is Feeling Reinsurance Pinch After 9-11
The group life market is experiencing some of the same problems acquiring adequate reinsurance for losses caused by terrorism as the property-casualty market, say two life insurance industry executives.
“Since just before Christmas, we have been able to purchase only small amounts of reinsurance at very high prices,” says Donna Mundy, senior vice president of government affairs for UNUM/Provident Life.
Her company, she says, has been able to acquire only about 10% of what it wants to have and at a 1,000% increase in cost.
Moreover, Mundy says, the reinsurance policies contain new exclusions for losses caused by nuclear, chemical or biological attacks.
Mundy spoke at a recent National Association of Insurance Commissioners hearing in Washington on the status of the terrorism reinsurance market in the wake of the Sept. 11 attack.
Mark Andruss, vice president of corporate development for Fortis Insurance, says that since Sept. 11, Fortis has been able to obtain excess reinsurance that provides coverage for acts of terrorism.
However, he says, his company cannot get at any price catastrophic coverage involving many people dying in a single event.
Fortis is exploring alternatives, Andruss says, but anything available will likely have significant limitations and will place the company at risk if other reinsurance proves inadequate.
Mundy says that any reinsurance available is very expensive and thus makes it more difficult for employers to afford group life.
Noting that there is no statutory requirement for employers to provide group life, Mundy says there is a limit to the ability of employers to absorb these costs.
Employers, she says, can only take so much of an increase before they will shut down the benefit.
If there were a federal backstop for terrorism losses affecting group life, Mundy says, it should be possible to price the coverage closer to what existed before Sept. 11.
Andruss adds that without either a federal backstop or the ability to exclude losses from terrorist attacks, Fortis might have to exit the group life business.
He says a company that insured Cantor Fitzgerald, a company that lost a substantial number of employees in the Sept. 11 attack on the World Trade Center, would be facing a substantial stress on its capital.
Had Fortis been the insurer, and in the absense of catastrophe reinsurance coverage, its capital would have been wiped out, he says.