Two Big Reinsurers Say Their Attack Losses Will Hit $3.2 Billion

Potential business-interruption claims boost claim estimates

Dow Jones Business News
September 20, 2001

 

GENEVA -- The world's two largest reinsurance companies said Thursday the terror attacks on New York will produce far and away the largest claims they have ever faced, doubling their previous estimates to $3.2 billion.

Munich Re, the largest reinsurer, said this year's damage claims from the U.S. terrorist attacks could cost it 2.1 billion euros ($1.95 billion) before tax.

"In absolute terms (that figure) represents by far the largest damages burden in the company's history," Munich Re said from its headquarters in Germany. It had previously estimated damages of some one billion euros. The sum represents 11.5% of the company's 18.3 billion euros reinsurance premiums collected in fiscal 2000.

In Zurich, Switzerland, world number two Swiss Re said the strikes will have an after-tax effect of around two billion Swiss francs ($1.25 billion) in the current year -- about two thirds of 2000's annual profit.

It said it has yet to decide whether its reserves of 2.5 billion francs would need to be tapped to cover the impact.

In early trading in Frankfurt, Munich Re shares plunged by 4.6% to 245 euros. In Zurich, Swiss Re shares fell 4.9% to 136.5 Swiss francs.

The companies said they had to revise their estimates because a number of buildings close to the World Trade Center have been damaged or destroyed. This will have an impact on business interruption claims, Munich Re said.

"The attacks have revealed a previously unimaginable risk potential," Munich Re said. "This not only affects the U.S. market but applies worldwide. Primary insurance and reinsurance coverage, as well as terms and conditions, will have to be completely rethought."

Analysts said the insurance industry was in some respects prepared for such a disaster because experts had long considered it possible that a plane could hit the 110-story World Trade Center and had shared the risk, but no one had foreseen two planes hitting the twin towers.

A Munich Re spokeswoman said the cost estimate was "generous, with a degree of play room," but the company could not rule out a further rise.

Price increases could likely result and additional premiums for specific coverage for terrorist attacks were options, she added.

Due to the complexity of the losses, it also could take a long time to settle claims, Munich Re said.

Reinsurers provide backup to insurance companies against major losses.

Fitch Inc., a Stamford, Connecticut-based rating agency, said Wednesday overall insurance costs from last week's attacks against the World Trade Center and Pentagon are expected to exceed $30 billion, making it the industry's costliest disaster ever.

Swiss Re said it was fully cooperating with all stock exchanges and other authorities investigating short selling of Swiss Re shares, both prior to and since the attacks on the U.S.

Authorities in Germany, Switzerland, the U.S. and Japan are looking into reports of unusual trading in Swiss Re, Munich Re and other insurance shares in the days before the Sept. 11 attack.

They reportedly are checking into whether associates of alleged attacks mastermind Osama bin Laden profited by "short-selling" stocks because they knew of the attack in advance and anticipated it would cause share prices to plummet.

Short-selling involves offering shares of a company the seller does not yet own, anticipating that he will be able to buy the shares at a cheaper price than he has promised to sell.

Munich Re said it still plans to pay a 1.25 euros dividend.

Separately, Germany's Hanover Re said Thursday that it sees no reason to alter its estimated losses arising from damage claims in connection with the terrorist attacks in the U.S. last week.

"We see no reason to make a revision," said spokeswoman Gabriele Handrick. "We took more time than Munich Re for research, and these figures are definitive."

A week ago, Hanover Re said it estimated that profits will be down 400 million euros for 2001 because of last week's disaster in the U.S.

 

Copyright 2001

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