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Insurance is Chicago's Olympics hurdle

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Pat Ryan and Chicago Mayor Richard M. Daley will be performing a high-wire act this week for the International Olympic Committee: convincing its evaluation team that Chicago's unorthodox combination of limited city and state financial guarantees—plus an undefined insurance policy—will be as good as the unconditional government commitments being offered by Madrid, Rio de Janeiro and Tokyo.

The insurance idea is risky: While IOC President Jacques Rogge recently said the organization wouldn't insist on the blanket guarantee it has required in the past, the insurance plan is untested in Olympic circles. And it will be much harder to do a deal now that insurers have been hammered by the financial crisis than when the idea was first proposed two years ago.

Either way, Mr. Daley could find himself pressured to make the guarantee he has vowed not to. Though he contends no U.S. city has lost money outright by hosting the games, the possibility of putting taxpayers on the hook for an undefined tab is political kryptonite in a city that has a history of cost overruns on big projects.

"Knowing the IOC, (insurance) sweetens the pot, but they pretty much want a total guarantee," says Deedee Corradini, who was mayor of Salt Lake City when it won the 2002 Winter Games with the help of a guarantee from the state of Utah.

The sales job will fall primarily to Mr. Ryan, who leads the bid committee and made his mark building Aon Corp. into the world's No. 2 broker of business insurance. Even if he can sell the IOC on the insurance idea, he'll face a big challenge finding companies willing to provide the coverage.

"I wish them luck," says Bill Bannon, vice-president of advisory and special-risk services for BWD Group L.L.C. in Jericho, N.Y., which provides insurance to professional sports teams. "With the whole credit crunch and collapse of the credit markets, I would think it would be very difficult to do right now."

Mr. Ryan says he has several companies lined up, but he declines to name them, saying it could cause a conflict when the policy is put out for bid. "We've talked with several companies willing to provide this type of insurance," a bid committee spokesman says. "We'd take it to market at the appropriate time."

Mr. Ryan insists the games would generate a $450 million profit, meaning neither taxpayer money nor insurance would be needed. But if Chicago lost money, it would use the $500 million insurance policy to supplement its own $500 million commitment and another $250 million pledged by the state.

Barry Sanders, who chaired Los Angeles' failed bid for the 2016 games, also was counting on insurance to satisfy the IOC. But he has doubts about the viability of the idea now.

"Could you get it done today? Probably not," he says. "It's not an environment to do out-of-the-ordinary deals, and this is out of the ordinary."

Los Angeles had two companies lined up to provide up to $1 billion of coverage, Mr. Sanders says. But, "one of the companies we were dealing with was AIG. I think they're probably focused on other things right now."

AIG declines to comment.

'It's doable'

The bigger issue is cost, says Don Urbanciz, a former commercial insurance executive in Chicago. He says such a policy would be handled by a group to spread the risk. Likely candidates, alongside AIG, are "Lloyd's, Munich Re and a whole lot of companies out of Bermuda."

"It's doable," says Mr. Urbanciz, who estimates such a policy would cost from $10 million to $75 million. "Because of the visibility of the Olympics, and it's Pat Ryan's baby, people will be willing to look at it. But it's definitely going to cost you more, and it will get a hell of a lot more scrutiny."

&Copy;2009 by Crain Communications Inc.

This article originally was published by Crain's Chicago Business, sister publication of Business Insurance.