Terrorist attacks declared largest insured single loss

In the face of rising loss estimates, insurers worldwide are beginning to process claims from the September 11 terrorist attacks that took place in the U.S. Early estimates of the total insured loss vary from US$25 billion to almost $60 billion, but analysts agree that the attacks represent the worst loss event in insurance history. The second largest single event, Hurricane Andrew, set the insurance industry back by US$20 billion (inflation adjusted), and led to a significant reduction in catastrophic capacity.

The attacks involved the hijacking of four planes, two of which were flown into New York’s World Trade Center (WTC), one into The Pentagon, and another that crashed in Somerset County, Pennsylvania when passengers attempted to thwart the terrorist hijackers. Authorities believe the fourth plane may have been on a suicide mission intended to strike the White House.

More than 5,000 people are believed to have died as a result of the attacks, including hundreds of insurance industry employees located at offices within the twin towers of the WTC.

Insurers have now begun the task of quantifying exposures and assessing reinsurance coverage in light of the disaster, although adjusters have not been allowed access to the WTC site. Some insurers have also begun paying claims in advance. Most insurers have said they would not be invoking “act of war” exclusions on coverage, despite comments made by U.S. president George Bush and secretary of state Colin Powell that the terrorist attacks constituted an act of war against the U.S. However, many reinsurance contracts have specific exclusions for terrorism, and the impact of these clauses has been a source of debate. Most reinsurers have indicated that they will not invoke any exclusions that may exist in covers.

The losses in question stem mainly from property damage to the affected buildings, not only Towers I and II of the WTC, but also surrounding buildings in downtown Manhattan, as well as the lost airliners. In the weeks following the attacks, insurers have also been revising loss estimates to include additional exposures such as business interruption, workers compensation, auto and life.

Among those most heavily hit are Munich Re with an estimated loss of US$1.95 billion, Swiss Re with US$1.65 billion, and General Re’s parent company, Berkshire Hathaway at US$2.2 billion. Lloyd’s of London has indicated that its total loss will likely be around US$1.9 billion. Insurers facing large exposures include Allianz at US$975 million, ACE Ltd. with US$786 million, Citigroup at US$714 million, and St. Paul with US$700 million. Some Canadian life insurers also incurred losses, these include Manulife at around Cdn$150 million, London Life with Cdn$82 million, and Canada Life’s total of about Cdn$15 million.

Insurer financial strength ratings have been downgraded or placed on watch as a result of the losses, and stock insurance companies have seen their values drop significantly on Canadian and U.S. exchanges. To date, reported loss estimates total more than US$16 billion. The worst man-made disaster worldwide, the Piper Alpha oil platform explosion off the coast of Britain in 1988, caused US$3 billion in insured losses.

While some sources have called into question the solvency of insurers in light of this latest disaster, the National Association of Insurance Commissioners and several industry leaders have stepped in to reassure U.S. Congress that claims will be paid.

Worst Disasters in U.S. History (US$)

Hurricane Andrew (1992)

$15.5 billion

Northridge Earthquake (1994)

$15.3 billion

Hurricane Hugo (1989)

$4.2 billion