Attack loss tally grows, may pass $30 billion

Insured losses from the Sept. 11 terrorist attacks could ultimately exceed $30 billion, according to estimates issued last week by several analysts.

That would make the disaster the largest single insured loss in history. And some experts have cautioned that the losses could climb even higher, particularly after Munich Reinsurance Co. and Swiss Reinsurance Co. both roughly doubled their initial estimates of their losses and Berkshire Hathaway Inc. estimated that it would face losses of about $2.2 billion.

In issuing its estimate, Berkshire Hathaway said that it was sticking to its earlier assumption that its losses would amount to 3% to 5% of the industry total. If that estimate proves to be correct, total losses would be about $44 billion.

Meanwhile, New York-based Standard & Poor's Corp. lowered its financial strength ratings of two insurers because of exposures relating to the Sept. 11 attack. Lloyd's of London's rating fell to A from A+, and Zurich Insurance Co.'s dropped to AA from AA+. S&P had already placed two insurers exposed to losses from the attacks under CreditWatch with negative implications, and on Thursday it assigned that status to an additional 15 insurers, as well as to Lloyd's and Zurich.

In a Friday morning teleconference, Mark Puccia, S&P's managing director-financial services group, said that although the attacks were likely to become the largest insured loss in history, the rating agency is not ready to endorse any particular loss projection. By Friday morning, S&P had tallied $19.2 billion in claims from various public and confidential sources.

Oldwick, N.J.-based A.M. Best Co. warned early last week that it is too early to precisely gauge the financial impact of the disaster, in which hijacked commercial jets were crashed in New York, the District of Columbia and Pennsylvania. Based on information provided by insurers and reinsurers and on its own analysis, though, Best estimated that losses for all lines of insurance-including life insurance-could go above $30 billion. That would make the terrorist attacks the most costly catastrophe in history in terms of insured losses.

According to Best, property, aviation, business interruption, workers compensation, commercial liability and life insurance would probably see the largest losses.

In an interview late last week, Matthew Mosher, Best's group vp-property/casualty, said: "We're not too surprised to see some of the original estimates being increased. I think, at the time they were made, the general view of the overall cost wasn't as high as it is now."

"If you were to say the likelihood of up or down, our guesstimate is that it is more likely to go up than to go down," Mr. Mosher said.

"I wouldn't be surprised all that much if estimates rose. Insurers almost never revise down, but they very frequently revise up," said Michael Baum, an analyst with Friedman, Billings, Ramsey & Co. Inc., an Arlington, Va.-based brokerage.

Kenneth S. Zuckerberg, vp-equity research for Dresdner Kleinwort Wasserstein in New York, said insured property and liability losses could run as high as $25 billion to $30 billion. He said that the losses would break down roughly as: $8.5 billion to $9 billion in aviation liability and hull losses; $4.5 billion in commercial property for the World Trade Center, and $1 billion to $2 billion for other buildings in the affected area; $5 billion to $10 billion in business interruption; $2 billion to $3 billion in workers compensation; and as much as $2 billion in other insured damage. In addition to the property/casualty loss, there could be an additional $2 billion to $4 billion in life insurance losses, Mr. Zuckerberg said.

Morgan Stanley estimated the insurance industry would sustain losses at the "high end" of the $25 billion to $30 billion range, with reinsurers bearing the brunt. "We believe large swaths of the reinsurance market are likely insolvent. Uncollectible reinsurance is going to be a problem," the company said in a Sept. 17 document.

During the Friday teleconference, S&P's Mr. Puccia repeated the rating agency's earlier contention that total industry losses would have to exceed $50 billion before S&P would begin worry that a substantial number of insurers' claims-paying ability may be compromised. He stressed that he does not believe that any of S&P's interactively rated leading insurers and reinsurers face solvency-threatening levels of claims.