Lloyd's estimates Pounds 1.2bn losses for American attacks; Terror in America. (Business)

Times (London), Sept 26, 2001 p28

By James Moore

LLOYD'S , the insurance market, will put out a detailed statement todayestimating its losses from the terrorist attacks on America at close to Pounds 1.2 billion.

The estimate marks the first attempt by Lloyd's officials to publish a "realistic" assessment of its liabilities, and follows analysis of the exposure of each of the market's 108 syndicates to the atrocities.

Lloyd's is expected to give warning that losses arising from the attacks will dwarf the market's biggest single loss - the Pounds 929 million paid out in 1989 to cover damage caused by Hurricane Hugo.

The market is also likely to reiterate warnings from the Association of Lloyd's Members that Lloyd's names can expect imminent cash calls to cover claims in the 2000 and 2001 years of account.

The news will follow publication of a report yesterday which estimated that total losses arising from the attacks could top $57 billion (Pounds 39 billion). The estimate, released by Tillinghast-Towers Perrin, the global actuarial consultancy, is higher than the $50 billion loss Standard & Poor's, the credit ratings agency, has suggested would put the global insurance system under grave pressure. Tillinghast's report said: "A loss of this magnitude will test the industry in a manner not seen before."

The report says only the total cost of American asbestosis claims, which in part led to the financial disaster at Lloyd's in the late 1980s, is likely to exceed the impact of the terrorist attack. Chillingly the report adds: "Historically early estimates of catastrophic losses have been low, with substantial upward revisions occurring as better claims information became available.

"For example, early estimates of industry losses from Hurricane Andrew and the Northridge earthquake were each less than one half of their final tallies. We expect that the terrorist attack will not be different."

The actuary says the general insurance sector will be worst hit with reinsurers likely to be forced to rein in their underwriting capacity.

It says the combined estimate from 60 insurers who have so far detailed their exposure stands at $20 billion. It believes the biggest variable in its calculation is in the legal liability field with estimates ranging from $5 billion to $20 billion.

The report also expects the tragedy will result in a number of insurance companies going bust, pointing out that 1992's Hurricane Andrew caused six insolvencies. It cost the industry just $20 billion.

Lloyd's is understood to be "confident" of its ability to meet the claims and has been seeking to play down reports that the attacks could lead to the end of the market.

Insiders have pointed out that only the failure of a capital provider to the market would bring the central fund into play, which currently holds around Pounds 300 million with an additional Pounds 500 million worth of reinsurance cover from AA rated providers.

The Association of Lloyd's Members, said: "It is possible that the disaster may push some weaker reinsurance companies into insolvency.

"Although the great majority of Lloyd's reinsurance is placed with A rated or better insurance companies there is a small amount placed with lower rated companies and there could be some reinsurance failures which would increase the 1999 or later year of account losses."

But the ALM said that premium rates would significantly increase as a result.