S&P Report Analyzes Impact of 9/11 Ruling on Insurers

October 1, 2003

A recent court ruling deemed the World Trade Center attacks to be a single event for insurance purposes, which is good news for insurers on the heels of some bad news: an earlier ruling allowing lawsuits to proceed against the Port Authority of New York and New Jersey and
the airlines. Despite the twists and turns of the legal process, insurance companies’ reserves have held fast, Standard & Poor’s said in a recent report.

In addition, according to the report, the projected insured losses arising from the catastrophe – $35 billion – are the worst the industry has ever sustained. However, they are far less than the $50 billion that Standard & Poor’s had said – shortly after the attack – that the (re)insurance industry would have to incur to threaten insolvencies.

“The sector has actually seen profitability improve, as pricing and
underwriting practices have firmed up in the two years since Sept. 11, 2001,” said Steve Dreyer, credit analyst at Standard & Poor’s in New York. “Since Sept. 11, 2001, we’ve seen more profits driven by firmer pricing, and accident year underwriting results are finally moving towards respectable levels of profitability.”

Eleven of the 18 insurance companies put on CreditWatch negative by Standard & Poor’s in the immediate wake of the disaster and 14 of the world’s 20 largest reinsurers are rated lower than they had been on Sept. 11, 2001. However, the difficulties adversely affecting the credit quality of these companies were only partially related to the disaster. “The industry still has yet to fully recover from issues before Sept. 11,” Dreyer added.

The commentary article, titled “Insurer Sept. 11 Reserves Unaffected by Recent Ruling,” was published on Sept. 25, 2003 and can be found on RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com.

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