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:: RESOURCES STATUS OF TERRORISM INSURANCE BILL As of 8/12/2002, the bill has passed the House, and passed in the Senate. The bill is now in a conference committee where the differences between the House and Senate versions will be sorted out. Articles from - INSURANCE-LETTER SETTLEMENT OFFERS SUBMITTED IN WTC INSURANCE SUIT August 08, 2002 05:08 PM ET By Philip Klein NEW YORK, Aug 8 (Reuters) - World Trade Center leaseholder Larry Silverstein and his insurers on Thursday submitted sealed settlement offers to a federal judge in New York in an effort to resolve their multi-billion dollar lawsuit over insurance coverage for the Sept. 11 attacks without a trial. Silverstein has been battling with his 20 insurers over whether the destruction of the Twin Towers represented two events, entitling him to more that $7 billion in claims, or one event, leaving him with half that amount. This would be insufficient to both rebuild the complex and recoup lost rents. Publicly, Silverstein and lead insurer Swiss Re RUKZn.VX have moved apart in their valuations of the total insurance loss, and their estimates now differ by about $6 billion. But nonetheless, both sides may be willing to reach a compromise to avoid the delay and publicity associated with a protracted trial. The case has been complicated because at the time of the attacks, the details of the insurance policy on the World Trade Center were not finalized. Under one insurance form written by London-based Willis Group Holdings Ltd. WSH.N , the attack would be considered one event, but under the other policy form, written by Travelers Property Casualty Corp. TAPa.N , it could be interpreted as two. Lawyers for Swiss Re, which holds 22 percent of the insurance obligation, have argued that the Willis form was clearly the dominant form and that Silverstein's lawyers created the concept of two occurrences only after the Sept. 11 attacks. The Silverstein camp has said that the Willis form was just a starting point for negotiations and that the Travelers form ended up becoming the dominant form after banks insisted on it because Travelers had a high credit rating. Talk of a settlement comes as New York City has proposed swapping ownership of its two airports with the Port Authority of New York and New Jersey in exchange for ownership of the World Trade Center. The property of the complex is currently owned by the Port Authority, which leased it to Silverstein last year. ABOUT FIVE BILLION DOLLARS APART - Silverstein has said through a spokesman that he would cooperate with such a deal, but it is unclear how that would affect how much say he has in the rebuilding process. The Port Authority has said repeatedly that he has an important role to play, but his voice would likely be bolstered were he to gain a larger sum of insurance money. U.S. District Court Judge Lewis A. Kaplan asked Silverstein's lawyers to submit a letter on Thursday with a minimum price they would settle for and the insurers to offer their maximum price to see if the range is narrow enough to negotiate an out of court settlement. "They'll be somewhere between four and five billion dollars apart," said Swiss Re lawyer Barry Ostrager of the likely settlement offers. "The insurers view the present settlement value of this to be in the low to mid $2 billion range, and if I believe anything Silverstein said in the press, that's not going to get this done." Silverstein representatives would not comment on how likely a settlement would be. "The Silverstein parties will negotiate in good faith," said Silverstein spokesperson Gerald McKelvey. Swiss Re said its own experts had determined the true value of a claim on the World Trade Center at $2.4 billion. The Silverstein side said the full value is $8.2 billon, with the complex alone worth $5.7 billion and business interruption totaling $2.5 billion. Even so, lawyers for the broker Willis said a settlement is a real possibility. "I'm sure there will be pressure exacted (by Judge Kaplan) on the parties," said Stuart Gerson, counsel for Willis Group Holdings Ltd. WSH.N , the insurance broker which arranged Silverstein's WTC insurance policy. Willis is not a party to the trial or settlement talks, but its employees have been heavily questioned by both sides to establish the facts of how Silverstein's insurance was arranged. "They are not all on the same track," said Gerson. "You may have settlements with some (insurers) and not with all. But everybody lately has pronounced their desire to resolve it. Most civil litigation settles." If the case were to go to trial, the opening arguments are set to start on Nov. 12 and will be heard before Judge John S. Martin. (with additional reporting by Bill Rigby in New York) More Than $8 Billion In Commercial Property Deals Killed, Delayed Or Changed Due To Terrorism Insurance Issues Source: Mortgage Bankers Association of America. Washington, D.C. (July 15, 2002) - The lack of comprehensive and affordable terrorism insurance for commercial properties has killed an estimated $3.7 billion in deals so far this year, and has delayed or changed the pricing on another $4.5 billion, according to the Mortgage Bankers Association of America (MBA). In a survey conducted during June, MBA asked its commercial members to report whether the lack of terrorism insurance had impacted their business and to what extent. Forty-four percent reported that the lack of terrorism insurance had greatly affected their ability to make loans on commercial properties, while 40 percent reported that the lack of terrorism insurance had affected their business somewhat. Only 16 percent reported they had experienced no effect. The 25 firms responding included some of the largest commercial real estate finance firms in the country. Last year MBA commercial membership reported originating $73.8 billion in commercial and multifamily property loans. Lending on commercial properties has been much slower in the first half of this year, due in part to the economy, but also due to the inability of the property owners to obtain sufficient terrorism insurance to protect the interests of investors in these loans. "We have heard anecdotally about the problems on specific properties, but the magnitude of these numbers astounded me," said Jim Murphy, chairman of the MBA. "We are looking at billions of dollars in commercial financing that has been killed in the first half of the year because thus far Congress has been unable to reach agreement on a bill. The delay has been costly, and those costs will continue to go up the longer the delay." MBA believes the final resolution should include the following provisions: -- Establishment of a federal government reinsurance backstop, with initial loss limitations for insurers. Initial losses exceeding those covered by insurance companies would be paid by a federal government reinsurance program. -- A cap on total losses to the private sector at a negotiated amount. Amounts in excess of the cap should be approved by Congress to protect the potential unlimited liability of taxpayers. -- The program must include a provision for the review and evaluation of the need for future government intervention. Any resolution that is adopted should provide for the continuation of the program in the event that the private sector has not resumed writing policies that include necessary coverage and, secondly, that there are a sufficient number of insurers that have returned to the market to resume competitive pricing. For additional information, visit MBA's Web site: www.mbaa.org. Senate Passes Federal Insurance Backstop 84-14 Tue Jun 18, 5:34 PM ET WASHINGTON (Reuters) - The U.S. Senate on Tuesday passed legislation that would provide a federal backstop for insurance companies in the event of another attack like Sept. 11, but left for a later date partisan disagreement over legal liability restrictions in the measure. The bill passed by a vote of 84-14. The Democrat-controlled Senate bill would back insurers with federal funds in the event of another Sept. 11-like attack once insurers absorb $10 billion in claims. Lawmakers now faces the challenge of reconciling the Senate version with language passed by the Republican-led House of Representatives. The House bill would tap government funds after the industry has paid out $1 billion in claims. In a major difference, the Senate left out restrictions against lawsuits contained in the House version. The House would limit punitive damage awards to victims, restrain non-economic damages and cap attorney's fees. Democrats say they do not want the bill to be a vehicle for liability law changes, a perennial partisan battle. Debate on Terror Insurance Is Under Way in the Senate June 16, 2002 - By JOSEPH B. TREASTER - The Senate began debate yesterday on insurance legislation that would require the government to pay the vast majority of losses in a terrorist attack, with Democrats and Republicans sharply divided over restrictions on terrorism-related lawsuits. In the early evening, Senator Tom Daschle, the majority leader, said the debate would most likely continue into next week. He said he would call for a vote on two amendments this morning. As introduced by Democrats last week, the legislation provides for the government to pay 90 percent of the financial losses in a terrorist attack if they exceed $10 billion. With losses of less than $10 billion, insurance companies would pay a portion based on their market share and would then be reimbursed for 80 percent of additional losses by the government. Disagreement over limits on terrorism-related lawsuits stalled the insurance measure in the Senate last December, and insurers, bankers and real estate groups that have been lobbying for the insurance bill say they fear that the debate could scuttle the bill. But Senators Charles E. Schumer, Democrat of New York, and Phil Gramm, Republican of Texas, said they were optimistic that a compromise would be reached. The Senate Republicans and the Bush administration want to bar victims of terrorism from bringing negligence lawsuits against businesses or the government. The Democrats oppose seeking punitive damages from the government but want victims to be able to recover damages from the government for economic losses and pain and suffering; they want no restrictions on suits against businesses. In the afternoon, the Democrats defeated an amendment that would have prevented lawsuits against American corporations. The vote was 50 to 46. Angela de Rocha, an aide to Senator Gramm, said that in its current form Republicans thought the legislation left government and businesses open to "predatory lawsuits." Even if Congress passed such a bill, she said, "the president will veto it." While urging passage of an insurance bill, President Bush has insisted on limiting lawsuits. Immediately after the Sept. 11 attacks, the insurers withdrew coverage for terrorism but later resumed writing policies. Those lobbying for government assistance, along with the Bush administration, contend that inadequate amounts of terrorism insurance have been an added strain on an already sluggish economy. At the same time, many insurance brokers and some consumer advocates contend that terrorism insurance is becoming increasingly available and that prices for the coverage are dropping. The Consumer Federation of America reiterated yesterday morning its belief that some big buildings, stadiums and other properties in New York and other big cities have not been able to obtain the necessary terrorism coverage. It urged that the legislation be focused specifically on areas where the shortage was most acute to limit the potential cost to taxpayers. If the Senate passes an insurance bill, it will have to be reconciled with a far different insurance measure adopted by the House last fall. Instead of paying for most of the costs in an attack, the House bill would make loans available to the insurers. But in an interview, Mr. Schumer said he thought the differences could be resolved. "Once we get a Senate bill," he said, "we'll get a bill we can send to the president." SENATE BEGINS DEBATE ON A FEDERAL TERRORISM REINSURANCE BACKSTOP Defeats Amendment to Limit Punitive Damages. INDIANAPOLIS (June 13, 2002)-The U.S. Senate began debate today on a terrorism reinsurance bill, and later voted 50-46 along party lines to table a Republican amendment on a compromise that would have banned punitive damages unless the defendant had been convicted of a criminal offense that is related to the plaintiff's injury. Senators Mitch McConnell, R-Ky., and Phil Gramm, R-Texas, sponsored the amendment. Debate began on the Senate floor this morning, clearing the way for possible completion of Senate action before a scheduled July 4th recess. Treasury Secretary O'Neill and several White House officials sent a letter Monday to Senate Majority Leader, Trent Lott, R-Miss., asking the Senate to pass terrorism insurance legislation. "NAMIC is very pleased that the Senate has brought this issue to the floor today, said Monte Ward, NAMIC's federal affairs vice president. "This legislation is desperately needed and is long overdue. NAMIC supports the legislation and specifically, supports the individual company trigger within the bill. NAMIC also supports the inclusion of personal lines on a voluntary basis." This debate was not on the Senate calendar, but the chamber reached unanimous consent last night to begin debate on S. 2600, the Terrorism Risk Insurance Act of 2002, as introduced by Sen. Chris Dodd, D-Conn., last Friday. The Senate failed, however, to reach a procedural Secretary O'Neill's letter can be accessed at NAMIC Online at http://www.namic.org/default.asp?ArticleID=3943 . The House of Representatives passed its version of the bill, H.R. 3210, the Terrorism Risk Protection Act, by a vote of 227-193, on Nov. 29, 2001 U.S. LAWMAKERS TO START DEBATE OVER ATTACK INSURANCE By Mark Felsenthal WASHINGTON, June 12 (Reuters) - The U.S. Senate will start debate on Thursday on long-awaited legislation providing a federal safety net for insurance companies in the event of another Sept. 11-like attack, lawmakers decided on Wednesday. Most lawmakers support the backstop, which they say is necessary to guarantee financing for big construction projects and to maintain the credit ratings on high-profile commercial properties. But a rocky road lies ahead for the insurance bill since lawmakers are still dug in along party lines over how much to protect businesses from lawsuits. The Republican-led House of Representatives passed a bill that would tap government funds after the industry has paid out $1 billion in claims, should another attack occur. Insurers say they will be able to absorb the estimated $40 billion in claims resulting from the Sept. 11 attacks but would be hard pressed to withstand another similar assault. Republicans want to limit punitive damage awards to victims of another attack, restrain noneconomic damages and cap attorneys' fees. Democrats say they don't think the insurance bill should be a vehicle for liability law reforms, a perennial partisan battle. The Democrat-controlled Senate version, proposed by Connecticut Sen. Christopher Dodd, brings federal funds to the rescue after $10 billion in claims. It says only that lawsuits arising from an attack should be decided in federal court and protects the government from punitive damages. Senate Republicans say liability protections are necessary to protect businesses from opportunistic lawsuits. President George W. Bush agrees with them, Republican Senators said in discussion of the bill on Wednesday. "A bill that makes the victims of terrorist attacks subject to punitive damages and that opens up this whole area for further predatory lawsuits will not be signed by the president," Sen. Mitch McConnell, a Kentucky Republican said. Treasury Secretary Paul O'Neill and other senior administration officials wrote to Senate Republican Leader Trent Lott on Monday saying they would advise President Bush not to sign any legislation that does not contain protections against lawsuits. The Senate and House would have to reconcile their versions of the legislation before the measure reaches the president's desk. Dodd acknowledged the chasm separating the two approaches. "Even if we complete our work here, there is a monumental amount of work to be done to reach an agreement with the other body," he said. Bush Officials Press U.S. Congress on Terror Insurance Mon Jun 10,12:53 PM ET WASHINGTON (Reuters) - Senior officials in the Bush administration wrote Congress urging passage of legislation providing a federal backstop for insurers in the event of another Sept. 11-like attack, but said the measure must contain protections from lawsuits. "It makes little economic sense to pass a terrorism insurance bill that leaves our economy exposed to such inappropriate and needless legal uncertainty," the officials wrote to Senate Minority Leader Trent Lott, a Mississippi Republican. Insurance companies were able to pay claims from the damage of the Sept. 11 attacks, but have said they would have trouble surviving another calamity of similar magnitude. Partisan disagreement over legal liability should another Sept. 11-type assault occur has hobbled legislation under consideration in Congress. The letter -- written by Treasury Secretary Paul O'Neill, National Economic Council Director Lawrence Lindsey, Office of Management and Budget Director Mitch Daniels, and Council of Economic Advisors Director Glenn Hubbard -- comes on the heels of a call by President Bush last week to provide a life preserver for insurers. Bush said last week that a lack of federal backing is resulting in economic dislocation, with construction projects having difficulty finding reasonably priced insurance, making it hard for them to get loans. In their letter to Lott, O'Neill and the other officials wrote, "The disruption of terrorism coverage makes it more difficult to operate, acquire or refinance property, leading to diminished bank lending for new construction projects and lower asset values for existing projects." The Republican-controlled House of Representatives has passed legislation that would make government funds available after the industry has paid out $1 billion in claims. However the Democrat-controlled Senate has balked over restrictions against punitive damage awards to victims of Sept. 11-like attacks, limitations to other noneconomic damages, and caps on attorney's fees. Connecticut Democratic Sen. Christopher Dodd last week introduced insurance backstop legislation that dropped such limitations on legal liability. Senate Majority Leader Thomas Daschle said he would try to bring the bill up for debate within the next three weeks. Apartment Living Pricier as Increased Insurance Costs Trickle Down to Renters By Liz Strillacci, insure.com - A recent warning from the FBI that terrorists may be renting apartments for storage of explosives is pushing up landlords' already-rising commercial insurance for apartment buildings, which may in turn get passed on in higher rental rates. Premiums already jumped by as much as 60 percent this past year, due in large part to a growing number of tenant claims for harm or injury. The increase in insurance rates for owners of apartment buildings was exacerbated by the events of Sept. 11, and analysts say projected increases for the coming year are between 50 and 100 percent. In addition to an increase in tenant claims, landlords are facing more and more categories of potential liability. The biggest impact last year was from mold claims, triple the number of mold claims in 2000. Mold has been related to health problems and the court settlements of lawsuits in the last 12 months have been in the millions of dollars. However, landlords typically haven't passed on the cost of insurance premium increases to tenants the way an office-building owner would. In the past, landlords were more concerned about renting out empty units. About one-third of Americans rent apartments or houses and 15 percent of all U.S. households reside in apartments, according to the National Multi Housing Council (NMHC). Since Sept. 11, occupancy rates for apartments have dropped, though not dramatically, but the threat of apartment buildings becoming terrorist targets and the ensuing increases in insurance may finally force owners to raise rents. Insurance rates and deductibles for apartment buildings had already increased twofold without the recent terrorist threat. According to insurance broker Marsh, a unit of March & McLennan Co. in New York, the cost of liability insurance for a 5,000-unit apartment complex in 1999 averaged $100,000 annually with no deductible required. Currently, that same complex would average $250,000 in premiums annually with a minimum $5,000 deductible. Most deductibles average closer to $25,000. According to Jay Harris, Vice President of Property Management for the NMHC, there are numerous commercial property owners, including owners of apartment buildings, who have elected to go without specific terrorist insurance. "Many of the lenders on these properties have accepted that, but some have insisted that property owners carry terrorist insurance. It's a very fluid situation." Presently there doesn't seem to be any consistency among lenders; Harris says he believes everyone is waiting to see if Congress adopts any sort of backstop policy for any future terrorist events. In the interim, some property owners have found terrorist insurance either too expensive or that the coverage they can afford doesn't provide enough protection to make it worth the cost. "The one good thing that has come out of this is the increase in purchase of renters insurance," says Harris. "Less than 25 percent of renters have renters insurance," in part because insurance agents didn't push the product because "there isn't much money in it." While an owner's property insurance on a building will protect the building itself in the event of damage, it doesn't cover what is inside apartments. Renters need their own insurance to protect their belongings and to protect them in liability cases. For instance, if you rent an apartment and accidentally leave something on the stove too long and cause a fire, you are liable for the damage and any injuries that are caused. Renters insurance protects you. "I think there's been a very weak understanding of insurance by people who rent housing," says Harris. "I have to say I'm glad to see renters insurance being promoted and people buying it more frequently." S&P Holding Off on Terror Insurance Downgrades By Richard Leong NEW YORK, June 4 (Reuters) - Bond rating agency Standard & Poor's, unlike its competitors, said on Tuesday commercial mortgage bonds backed by properties that lack adequate terror insurance will not be placed on its list for possible downgrade. "We are taking a wait-and-see attitude. It's not going to happen anytime soon," said Roy Chun, a S&P managing director. "We don't have any plans to downgrade based solely on the lack of terrorism insurance." Since the Sept. 11 attacks -- estimated to cost $30 billion, the most ever for the insurance industry -- many insurers dropped coverage of terror acts from standard "all-risk" policies on commercial properties. The few insurers willing to take on the risk are charging huge premiums, as much as 10 times more than for "all-risk" policies. S&P's two bond rating rivals -- Fitch Ratings and Moody's Investors Service -- recently issued their lists on commercial mortgage-backed securities on "watch" for possible downgrades. The ratings agencies concluded the commercial properties that secure these bonds could be prime terror targets and lack adequate insurance coverage to pay back bondholders in case of attacks. Moreover, the U.S. government has not implemented a plan to act as a financial safety net for insurers by encouraging more affordable terrorism insurance, Fitch said. S&P, after surveying market participants, decided to hold off on taking rating actions on commercial mortgage bonds amid worries over future attacks, Chun said. Risks of future attacks are "not very quantifiable," he said. While acknowledging that these risks are very difficult to quantify, a Moody's spokesman said in a Friday statement, "we believe that ignoring the risks would be inappropriate." The spokesman added that while the probability of a major downgrade or default because of a attack remains fairly remote, "the overall risk in these transactions has clearly increased." Terror Insurance Cost Pits Lenders, Owners Mon May 27, 2:36 PM ET By Richard Leong NEW YORK (Reuters) - With Nasdaq stock prices flashing across its facade, the skyscraper in Times Square is a prime tourist attraction embroiled in a heated debate between real estate lenders and owners over the high cost of terrorism insurance since Sept. 11. Following the attacks, many insurers dropped coverage of terror acts from "all-risk" policies on commercial properties. The few insurers willing to take on the risks are charging enormous premiums, as much as 10 times more than for "all-risk" policies. "It's a problem for all high-profile trophy buildings," said Gary Rosenberg, a lawyer for the Durst Organization, which is majority owner of Four Times Square Associates, which owns the 48-story building that is home to such tenants as the Nasdaq exchange, legal giant Skadden Arps and magazine powerhouse Conde Naste. Four Times Square Associates filed suit last month against its lenders -- LaSalle Bank, Cigna Investment and BNY Asset Solutions -- to stop them from forcing it to pay up to $5 million annually for terrorism insurance on the building. That is 10 times more than the premium on the all-risk blanket coverage policy it bought for the current year. Trophy property owners and lenders are in a bind. Owners don't want to be stuck paying exorbitant premiums for terrorism insurance, and lenders want financial guarantees on their investments in case of an attack. Both sides have pushed U.S. lawmakers to provide a safety net for insurers who underwrite terrorism insurance. But while Congress struggles to come to an agreement, owners and lenders are taking their cases to court. LaSalle, a unit of Dutch bank ABN AMRO Holding NV , and CIGNA Corp.'s Cigna Investment funded Four Times Square's $430 million mortgage loan. Bank of New York's BNY Asset Solutions administers the loan, which was used as collateral for bonds sold to investors. The three companies declined to comment on the issue of insuring Four Times Square. There is scant precedent for this case. But under an extreme scenario, Four Times Square's lenders and loan servicer could declare that the mortgage is in default and take over the property due to the absence terrorism insurance coverage. In another high-profile dispute, as part of a legal settlement with a General Motors Corp. finance unit, Simon Property Group Inc, the co-owner and manager of Minnesota's Mall of America, bought a terrorism policy for the biggest U.S. shopping center. "The only way this issue could be resolved is a plan from the government, because the uncertainty is too great," said Kenneth Rosen, chief executive officer at Lend Lease Rosen Real Estate Securities LLC in Berkeley, California. INSURERS SKITTISH AFTER ATTACKS - The September attacks, which leveled the 110-story World Trade Center's twin Towers and damaged the Pentagon, could cost insurers $30 billion to $70 billion --the biggest loss ever for the insurance industry. Since Sept. 11, few insurers have been willing to underwrite terrorism policies on commercial properties, especially those with the trophy status of the World Trade Center. Soaring insurance costs have gone beyond office towers. Insurers have doubled the annual premium on San Francisco's Golden Gate Bridge to $1 million. As the debate mounts, the real estate industry faces a construction slowdown, which some blame on lenders' reluctance to fund projects due to a lack of terrorism insurance. Real estate loans are often bundled into bonds by Wall Street for sale to investors. But disputes between property owners and lenders raise fears among bond investors. "Until this is resolved, bondholders are at risk," said Rosenberg, the Durst attorney. Premiums on standard property and casualty insurance have jumped by as little as 10 percent and by as much to 300 percent for owners of large urban commercial properties. They are scrambling to find coverage from a single insurer for properties worth more than $25 million, bond rating service Standard & Poor's said in a recent report. The rift between lenders and owners will likely deepen, investors and analysts say, until more affordable terrorism policies are available -- or the government steps in. TYING UP THE COURTS - Until Congress acts, the courts will judge whether owners are obliged to buy separate insurance against terrorism, which "all-risk" policies no longer cover. "We could see a lot more (cases on this issue) going to court unless the federal government comes in and the industry comes out with standards on the adequate amount of terrorism insurance," Roy Chun, an S&P managing director, told Reuters. Despite the surge in premiums, standard insurance coverage still accounts for only a small share of commercial landlords' operating expense, ranging from 1 percent to 3 percent, S&P said. It should not hurt landlords' ability to make timely mortgage payments, said S&P, which has no immediate plans to downgrade commercial mortgage bonds due to terrorism insurance gaps. "S&P is taking a wait-and-see approach on downgrades," Chun said. As for Four Times Square, New York courts so far have sided with Durst, granting an injunction against its lenders and servicer from taking money from the owner to pay for separate terrorism insurance. But the lenders aim to appeal the injunction. "Mortgagees across the country are watching this case," said Rosenberg, the Durst lawyer. U.S. Federal Insurance Backstop Urgency Seen Slowing WASHINGTON, May 21 (Reuters) - A key supporter of legislation to provide a federal backstop for insurers in the event of another Sept. 11-like attack expressed pessimism about the measure's prospects on Tuesday. "I think there's a case to be made that we need it but as time goes by, it's harder to convince members, absent an event," said Sen. Christopher Dodd, a Connecticut Democrat. The House has passed legislation that would provide federal funds to back up insurers who say they were able to pay claims resulting from the events of Sept. 11 but would have a hard time surviving a another loss of that magnitude. Senators have been unable to agree on their own version, Dodd said. "We're still negotiating what the bill looks like when it comes up for a vote. This means to me we're not going to get it up, if we still haven't decided," the Connecticut lawmaker told reporters at the Capitol. The measure is stuck over a partisan disagreement regarding how much in damages victims could collect from insurers or businesses through lawsuits. Republicans, backed by the administration, have wanted any bill to bar punitive damage awards to victims of terrorist attacks, limit other noneconomic damages, and cap attorneys' fees. Senate Democrats oppose that. Momentum for the measure began to slow after Jan. 1, when forecasts of widespread policy cancellations or price spikes failed to materialize. Experts say the economy has not experienced a shock because banks continue to extend loans for large projects. A Federal Reserve study released last week found that lack of access to terror risk insurance since Sept. 11 appeared to have little effect on banks' willingness to lend for commercial projects. The House-passed bill would provide government loans to insurers to help them pay claims from future attacks. The industry would generally be required to bear the first $1 billion in claims before aid kicked in. Insurers say after-tax losses from the attack on the World Trade Center, which demolished both 110-story towers, should total $23 billion. Terror Cover Threatens Insurers -Buffett By Bill Rigby OMAHA, Neb. (Reuters) – 5/7/02 -Warren Buffett, whose Berkshire Hathaway Inc. owns one of the world's largest reinsurers, said on Sunday that many insurance firms are running huge risks on the terrorism coverage they are selling, which could put them out of business. "Many insurance companies are exposed to ruin" from policies including terrorism coverage, Buffett said, predicting that there will be more terror attacks, possibly nuclear or biological, that would dwarf losses from Sept. 11. "It'll happen -- in the next 10 minutes or the next 50 years," said Buffett, who expects a nuclear or biological attack on the country at some stage in the future. Buffett, whose reinsurance operations will pay out $2.4 billion of the overall $40 billion or so of losses from the destruction of the World Trade Center, renewed his call for the U.S. government to form a terror insurance program to help pay for future terror losses. He also called for insurance regulators to allow exclusions in policies for damage from nuclear attacks. "It isn't quantifiable," Buffett said, describing the dangers of underwriting terror risks.Despite that, Berkshire is providing some reinsurance cover -- which insurance companies buy to limit their losses -- but said that all policies they take on are strictly capped, so Berkshire knows the maximum it will have to pay out. "We're selling more terrorism coverage than anybody," Buffett said, "but it does not endanger Berkshire Hathaway." Berkshire, which owns the world No. 4 reinsurer General Re and specialized large risk underwriter National Indemnity, is in a better position than most to take on terror risk, as it has huge amounts of investments to cover claims, if necessary. According to the annual report, Berkshire has $58 billion in shareholders equity, much more than most insurers. "Anything we can conceive of, we won't have a real problem financially," he said. Buffett went further in warning off competitors by saying reinsurance results would be "mediocre to lousy" over the long term. Buffett has played down investor optimism on the reinsurance sector over the past few months, which has attracted billions of dollars from Wall Street and established players who are hoping to reap profits as reinsurance rates soar in the wake of Sept. 11. Nevertheless, Buffett told shareholders at Berkshire's annual meeting on Saturday that his insurance and reinsurance operations had made a large profit in the first quarter, after a long period of difficulty. Terror Insurance Snag - Dursts Risk Default at Conde Nast Tower By ERIC HERMAN - Daily News Business Writer – 5/6/02 The Conde Nast building, one of the symbols of the new Times Square, could default on its mortgage because it lacks terrorism insurance. It's a sign of Sept. 11's enduring effects on New York's real estate industry — a legal battle between one of the city's oldest family-run real estate companies and its lenders in a scenario that industry executives fear could play out across the city. The 48-story building, owned by the Durst Organization and known as Four Times Square, opened two years ago. It faces W. 42nd Street between Broadway and Sixth Avenue and has blue-chip tenants such as the law firm Skadden Arps as well as Conde Nast. The tower brings in rents of $88 million a year. The Dursts took out a $430 million mortgage and, as the lenders required, a traditional, "all-risk" insurance policy. It did not specifically exclude terrorism coverage. Last month, the policy expired and a new one kicked in. The new policy excluded acts of terrorism from coverage. According to Durst lawyer Warren Estis, loan administrator Cigna Investments then tried to declare the building in The lender holding the mortgage, LaSalle Bank, and Cigna want access to a Durst bank account where rents from the building are deposited, Estis said. The lenders are trying to withdraw $3.2 million to pay for one year's worth of terrorism insurance. "They're looking to take it out of the lock-box, which belongs to the building owner," Estis said. "Our only obligation that's provided for in the mortgage is to maintain an all-risk policy, which is what we've had all these years." The Dursts won a victory this week when a state appellate court judge stopped the companies from taking the money. Cigna and LaSalle both declined to comment. Since Sept. 11, insurers have cut terrorism coverage from their all-risk policies, sending shudders through the real estate world. Separate terrorism policies cost a great deal. At the Conde Nast building, the tab would represent more than a six-fold jump over the 2001 insurance bill. Others worry that the issue will make buying and selling buildings nearly impossible. Billionaire Marvin Davis' planned purchase of 450 Lexington Ave. has stalled because of his difficulty buying coverage. Other high-profile Manhattan buildings could default on their mortgages because of lack of coverage, according to Roy Chun of Standard & Poor's. "It is and will continue to be an issue for Manhattan properties for a while," Chun said. "Many properties going forward are not going to have terrorism insurance coverage." Real estate insiders are lobbying the federal government to provide terrorism coverage. The Senate is considering a bill. "This problem is something that Congress should be solving," said Douglas Durst, head of the Durst Organization. "The longer they prolong it, the worse it's going to get." Experts Agree on Need for Federal Terrorism Reinsurance Backstop Hamilton, Bermuda – 5/2/02 - A panel of industry experts discussing the property/casualty insurance landscape in the wake of Sept. 11 agreed that terrorism is an uninsurable event and that the federal government must act to provide a backstop for terrorism reinsurance. Those comments came at the 80th annual meeting of the Alliance of American Insurers today in Hamilton, Bermuda. Participating in the panel discussion were: Edward Muhl, partner, PricewaterhouseCoopers, who served as moderator;
Schroeder said she does not think terrorism in an insurable act because it can't be geographically zoned and no one can predict whether the next target will be a trophy property or a high school stadium. She said insurers may be able to collect data and better determine their exposures, but she is very skeptical of those who are promoting models for underwriting terrorism insurance. "If you really think about terrorism, the purpose of terrorism is to invoke fear. Doing it in a very predictable way isn't going to achieve that goal," she said. Crerar said one of the results of the Sept. 11 tragedy has been a dramatic increase in the emphasis on quality underwriting. "There's a level of underwriting going on today that I don't think this industry has seen for the last 12 to 15 years," said Crerar. "I think the quality of it has increased substantially, to the point that a lot of companies are finally getting a handle on the kind of business and the quality of business that they really have." Vaugan said she was already seeing a hardening of the market and increased premiums prior to Sept. 11. "I think there has been a fundamental change in the attitude of the industry toward concentration issues," said the NAIC president. "There's much greater awareness of the issue of concentration, a lot more focus on it. We hear stories of insureds who have had insurance with a company for seven to 10 years and they've been non-renewed because the company just feels it's a workers comp concentration or property concentration that they are not prepared to deal with in the current environment." Vaughan said terrorism insurance needs to be looked at differently than traditional coverage. "You have to step back and look at how the private insurance market deals with risk and how that relates to the risk terrorism presents," she said. "You price risk on a private basis. Insureds that have high risks have higher premiums and that gives them an incentive to control their losses. Applying that kind of concept, the private insurance mechanism to the terrorism exposure, is going to lead to the kind of situation where insureds that have high risks, the trophy properties, the businesses that are located near those properties, would pay higher premiums. And I think there's a kind of fundamental question about at what level does that become socially unacceptable? Is this really a private risk or a public risk?" Crerar said that the price increases in the post Sept. 11 market are resulting in businesses shifting coverages to both the E&S and captive markets. "The captive issue and the explosion of brokers being approached by clients about captives worries me to some extent," he said. "What worries me, if you're concerned at all about the traditional admitted market, is that we're going to see another explosion and movement from our current market into the alternative market, and I think the alternative market is going to become THE market," he said. Andre said A.M. Best is in the process of questioning about 300 companies to see what their exposures are and what their worst-case scenarios may be in a terrorism event. "At the end of the day we'll assess whether their capital can withstand some likely problem of this event, and if it can, their ratings, if everything else remains the same, will be affirmed. If they can't, rating action may be necessary," said Andre. As to the chances of a terrorism insurance bill being agreed to in Congress, Vaughan said, "In January, I would have said slim to none. I'm amazed at how this has picked up momentum in the past month...When you start getting business leaders and union leaders out there saying 'we are having problems, we can't build a new hotel, we're losing construction jobs because there isn't any insurance available'…that's pretty powerful. And our sense is that that’s generating some good momentum. Whether that plays out into an actual bill, I can't say, but I'm more optimistic certainly than I was in January." The audience was welcomed by the Honorable Jennifer M. Smith, DHumL, JP, MP, Premier of Bermuda. She noted that the island is now home to over 1,600 insurance companies and that in the aftermath of Sept. 11, "There is now a greater recognition of the fact that the mutual reliance which springs from insurance and reinsurance must also be a part of our preparations to ensure the future against whatever it may hold." The Alliance's Annual Meeting has attracted over 300 members and guests. Other topics to be discussed include "The Future of the Catastrophic Risk Markets" and "The Outlook on the Economy and the Investment Markets." The meeting concludes Tuesday evening. The Alliance of American Insurers, based in Downers Grove, Illinois, is a national trade association representing 338 property/casualty insurance companies Senate Takes Up Terrorism Insurance By JOSEPH B. TREASTER April 30, 2002 Senate Democrats and Republicans have reached a consensus on the need to revive federal legislation that would put most of the burden of paying for a major terrorist attack on the government rather than insurance companies. A vote on the measure, which had been drifting for months, could come as early as this week. But passage is far from certain, because the parties have yet to resolve differences over limiting the damages victims could collect from insurers and other businesses. Consumer advocates and some insurance experts contend that with terrorism coverage becoming increasingly available at lower prices, government intervention is no longer needed. But the Bush administration and some lawmakers say that it is still difficult to get coverage for new construction projects and big buildings in cities like New York, Chicago and Los Angeles, and that the insurance shortage is creating a drag on a struggling economy. Despite the conflicting assessments, support for government intervention is now building, with strong encouragement from President Bush and determined lobbying by real estate executives, bankers and insurers. Mr. Bush urged passage of the bill in a meeting with A.F.L.-C.I.O. leaders in early April. Mr. Bush again emphasized the point last Friday in remarks on the economy,saying, "It is important to pass the terrorism insurance bill." Increasingly, the lawmakers are concluding that the greatest political risk for them is to do nothing, rather than planning an orderly response to any future attacks. "Sentiment to pass a terrorism insurance bill is growing day by day among the members of both parties," said Senator Charles Schumer, Democrat of New York and a leading supporter of government action. An aide to a senior Republican senator agreed, saying, "There's pretty strong support for this." After the House passed a terrorism insurance bill last fall, the issue stalled in the Senate over the ability of victims to collect damages from the government and businesses. Republican Senators, as well as the White House, want to limit claims in terrorist attacks to economic losses and prohibit claims for punitive damages. Many Democrats are willing to bar punitive damage claims against the government, but not against everyone else. Senator Phil Gramm, a Republican of Texas who introduced the insurance legislation, continues to press for limits on what victims can collect. "He always wanted to see it done," said his spokeswoman, Angela de Rocha, "he just wants to see it done right. The version that the Democrats are proposing now leaves taxpayers too exposed to predatory lawsuits." Under the Senate bill, insurers would pay for initial losses of up to several billion dollars per incident, according to the market share of each. The government would then pay 80 percent of any remaining losses up to $10 billion. For losses beyond $10 billion, the government would pay 90 percent. The insurers have estimated their losses in the Sept. 11 attacks at $50 billion. The Senate program would last one year with a provision for the Treasury Department to extend it for another year. Shortly after the September attacks, the insurers stopped providing terrorism coverage, saying they had no previous experience to guide them on pricing. They appealed to the government to put a ceiling on their future losses, saying they could then provide coverage at affordable prices. The Bush administration, insurers, bankers and real estate executives predicted a major economic crisis if Congress failed to intervene by the first of this year. That did not happen, largely because insurers have been offering coverage at ever-decreasing prices. Brokers say that coverage is now available for up to $1 billion for a single building, enough for all but the most prominent buildings in the biggest cities. "More than 75 percent of the largest corporations now have terrorism insurance," said J. Robert Hunter, director of insurance for the Consumer Federation of America. "The market is working. There is no need to put the taxpayer on the hook for this." Mr. Hunter suggested a far more limited program, with the government responsible only for losses of more than $500 million for new construction projects and the biggest, most likely targets in major cities. "The insurance companies have already demonstrated they can handle the rest of the coverage," Mr. Hunter said. Should a government program be enacted, Mr. Hunter said, it should include refunds for businesses that have already paid higher rates for coverage. Sept. 11 Raising Cost and Limiting Availability of Insurance ' ... the stability of the market, at least in the short term, lies in the hands of the U.S. Congress.' WASHINGTON, April 17 /PRNewswire/ -- Mounting evidence of the effects of the Sept. 11 terrorist attacks on the cost and availability of property/casualty (P/C) insurance was provided in a report released today by the Extreme Events Committee, American Academy of Actuaries. The Academy is the public policy organization representing all actuaries practicing in the U.S. and regularly provides analysis to lawmakers, regulators and the media. ``The evidence is growing that insurance companies are significantly raising premiums, and eliminating or limiting terrorism coverage, because of the tremendous financial risks posed by the threat of terrorism,'' said John J. Kollar, M.A.A.A., the committee's chairperson. The report notes that a tangible negative effect on the economy is emerging, particularly in the real estate and construction sectors. ``As insurers and reinsurers try to find ways to protect themselves from potential losses due to catastrophic terrorist events, the burden of risk will be shifted to the business community as an out-of-pocket expense. This will likely imperil new investment and place a greater drag on the economy,'' Kollar added. The report, Terrorism Insurance Coverage in the Aftermath of September 11th, provides an analysis of the impact of Sept. 11 and the current condition of the insurance and reinsurance markets. It also analyzes the effects of Sept. 11 on the P/C industry's current surplus, and discusses the legal, regulatory, financial and actuarial barriers to a non-governmental solution. Some of the report's findings include: -- The Sept. 11 terrorist attacks are the largest insured loss ever recorded, likely to be in the range of $30 billion to $70 billion, pre-tax. This compares to the $20 billion in losses from Hurricane Andrew in 1992, and the $15 - $16 billion in losses from California's Northridge earthquake in 1994 (in today's dollars). – Global reinsurers will likely incur $30 billion in insured losses from Sept. 11. This has led many reinsurers, which are not subject to policy language regulation in the U.S., to either exclude or substantially limit coverage for terrorism. -- Corporate risk managers are expecting premium increases of 40 percent to 50 percent versus the 18 percent increases anticipated in June 2001. -- The enormous financial consequences of additional extreme terrorist events could overwhelm industry capacity. The report provides analyses of terrorism exposure to the workers' compensation, property, and liability insurance lines of business. It cites workers' compensation and fire insurers as particularly vulnerable due to the statutory nature of these coverages. Even a modest-sized company with 100 employees could easily generate $50 million in workers' compensation losses from a catastrophic terrorist event. Some fire insurers face immediate and severe threats to their financial operations, including insolvency. While the report does not address specific bills under consideration in Congress, it cautions ``... the stability of the market, at least in the short term, lies in the hands of the U.S. Congress.'' ``The committee agrees that the challenges faced by the U.S. private insurance industry are daunting, and we have only seen the tip of the iceberg of the impact of Sept. 11,'' says Kollar. ``Many indications of the effects on the insurance market are submerged, but they are slowly rising to the surface. We need to be prepared to respond to these challenges or they could swamp economic growth just when it is needed most.'' For a complete copy of the 22-page report go to the Academy's Web site at http://www.actuary.org. Hotels, Lenders Spar Over Terrorism Insurance Friday April 12, 2:41 PM EDT By Doug Young LOS ANGELES, April 12 (Reuters) - A conflict is brewing in the nation's hotel industry over terrorism insurance, with lenders suggesting the threat of technical default for hotels refusing to buy policies. The issue has yet to reach the crisis point, but lenders with hundreds of millions of dollars in outstanding loans are growing increasingly skittish over some properties that lack such insurance, said Nancy Evans, who leads the hotel lending practice at Wells Fargo & Co. (WFC). Terrorism insurance policy prices have soared since the Sept. 11 attacks against the United States. The new costs come as insurance rates in general are on the rise nationwide, adding an extra burden on companies that must buy everything from health insurance for their employees to general liability insurance. A spokesman for a major resort operator with billions of dollars in property assets said the company's insurer specified that damage payments from any terrorism-related incident be capped at a combined $500 million. "It's a real issue," said the spokesman, who talked on condition that his name and the name of his company not be used. "The people we're talking to are willing, on the terrorist side, to go $500 million max. But that has to include physical damage as well as lost profit. You shut down a hotel for a month or a year and you're out of a lot of money." Before the air attacks on the World Trade Center and Pentagon, acts of terrorism were included in most general liability policies for real estate, industry experts said. Since Sept. 11, however, insurers have begun excluding such coverage from their general liability policies. Moreover, the terrorism coverage they do provide is underwritten separately -- often at prohibitive cost, according to Evans. In particular, she said, lenders are concerned about urban hotels that are either architectural landmarks or play host to high-profile people, such as movie stars and heads of state. Examples of such properties include the Waldorf and Plaza hotels in New York, or the Century Plaza in Los Angeles, a favorite resting spot for past U.S. presidents on their trips to Southern California. In a related development, San Francisco's Golden Gate Bridge, one of the most famous American landmarks, has seen its insurance premiums double while its coverage was cut by 60 percent. At the same time, the "terrorist coverage" included under the bridge's old policy will be dropped, officials have said. RENEWAL TIME The issue is gaining attention now because hotels must renew their policies each year, with most insurers refusing to include acts of terrorism in new policies, to the discomfort of lenders. "Most of the lenders are looking at the loan agreements that say the borrowers need to carry property insurance that's satisfactory to the bank," Evans said. "And most lenders with loans on high-profile assets are saying to be satisfactory, you need to have terrorism insurance." Under that interpretation, hotels lacking such insurance could technically be declared in default of their loan agreements, Evans said. Lenders are scrutinizing all their hotel loans as insurance policies come up for renewal, with smaller owners the most vulnerable, according to industry analysts. New projects are getting even bigger scrutiny, they added. In one such case, casino mogul Steve Wynn's newest Las Vegas resort, the $1.65 billion Le Reve, was having difficulty securing financing due to concerns over terrorism insurance, according to a published report. A Wynn spokesman had no comment on the report. FelCor Lodging Trust Inc. (FCH), one of the nation's biggest hotel owners with a portfolio of about 180 properties, is facing similar issues with its lenders, said Chief Executive Officer Tom Corcoran. "At this point, nothing officially has happened, Corcoran said. "Lenders are asking what could you get, if anything, (in terms of terrorism insurance), and whether clauses in loan agreements are sufficient to require terrorism insurance." LEGISLATIVE INITIATIVE To address the issue, the hotel industry wants the federal government to get involved as a financial back-up for insurers that might face catastrophic claims in the event of a terrorist attack, Corcoran said. President Bush has endorsed legislation passed by the House of Representatives along those lines and is now urging the U.S. Senate to take action on the measure. Meanwhile, Corcoran said, the lack of such insurance has brought construction of new high-profile properties like Le Reve -- already slow due to the economic slowdown -- to a virtual halt. "It's clear that if you're out there financing a project today or building a new property, the lender can require whatever they want" in terms of terrorism insurance, he said. "But for existing properties, it's a little grayer." OXLEY CALLS ON SENATE TO PASS TERRORISM INSURANCE LEGISLATION WASHINGTON, D.C., April 11—House Financial Services Chairman Michael G. Oxley (R-Ohio) today told nearly 800 independent insurance agents and brokers that the Senate must "stop protecting the trial lawyers and start protecting American jobs" by passing a federal terrorism insurance backstop. The Chairman also voiced support for agents and brokers, speaking against Patriot Act provisions that would burden small businesses, and against two Office of the Comptroller of the Currency (OCC) opinions that key provisions of Massachusetts and West Virginia bank-insurance laws should be preempted. Oxley spoke at the Independent Insurance Agents of America’s (IIAA) 26th Annual National Legislative Conference here. Oxley said the lack of terrorism insurance is clearly a drag on our economy, "That’s the last thing we need as we struggle out of a recession. This is becoming more than an insurance issue, it’s becoming an economic issue" He said the Senate must craft legislation, as the House did last November, to provide a federal backstop so that the nation is fully prepared to deal with potential terrorist attacks. Talking about the Senate’s reluctance to act on the terrorism bill or any of 50 other House-passed bills, Oxley joked that the Senate needs a stimulus package "to stimulate the Senate." PIA SAYS ACTION ON TERRORISM INSURANCE BACKSTOP SHOULD TAKE PRECEDENCE OVER NATURAL DISASTER INSURANCE BILL WASHINGTON -- April 11, 2002 -- Enactment of a temporary federal backstop for terrorism insurance must take precedence over action on other insurance related legislation in Congress, according to the National Association of Professional Insurance Agents (PIA). PIA said H.R. 4025 recently introduced by Rep. David Weldon (R-FL) that would establish a federal backstop program for homeowners insurance in areas that face natural disasters has merit, but the need for a terrorism backstop is more urgent. "Congress needs to keep its priorities straight," said PIA Director of Federal Affairs Peter Bizzozero. "While addressing natural disaster losses is important, it is not as important as preparing for potential future losses from acts of terrorism." "PIA is concerned that Congress not lose sight of priorities like a temporary federal backstop for terrorism insurance," Bizzozero said. "It is imperative that Congress act and act quickly. The longer it waits the more perilous the situation becomes. Without terrorism insurance our financial markets are at risk." PIA has and will continue to support a federal backstop for natural disaster insurance catastrophes. Over the next several months, PIA will work with our industry colleagues to fashion legislation that achieves the right balance of structure, triggers, participation and funding mechanisms. "Many of the compromises already reached by insurers for the insurance industry's suggested approach to a federal backstop for terrorism can serve as a model for natural disaster issues," Bizzozero said. "We commend Rep. Weldon for his excellent work in getting these issues back on the Congressional agenda by introducing H.R. 4025, but they should not be considered before the terrorism backstop." Senate Dems Ready to Vote on Insurance Backstop Tue Apr 9, 5:41 PM ET By Mark Felsenthal WASHINGTON (Reuters) – Senate Democrats are willing to vote on a national safety net for insurers in the event of another Sept. 11-like attack as long the bill does not prohibit civil lawsuits, Democratic lawmakers said on Tuesday. President Bush on Monday challenged Senate Majority Leader Tom Daschle to bring the attack insurance measure to a vote, saying costs and obstacles to obtaining insurance in the wake of the Sept. 11 attacks were costing jobs and creating a drag on the U.S. economy. "Senator Daschle wants to see if we can't get an agreement that would allow for a terrorism insurance bill to come up along the lines that we proposed at the end of the last Congress," said Connecticut Democratic Sen. Chris Dodd. Dodd told reporters that the crux of the debate -- which he and other lawmakers said may happen next week -- would be whether the measure allows lawsuits seeking punitive damages in civil actions. A prohibition against seeking punitive damages from the government could remain, he said. "The one sticking point is the punitive damages issue," said Dodd. IIAA, AAI Study Verifies Terrorism Insurance's Damaging Effects On Economy WASHINGTON, D.C., April 9—A survey of nearly 1,000 independent agents and brokers conducted by the Independent Insurance Agents of America (IIAA) and the Alliance of American Insurers (AAI) confirms the problems the insurance industry is having placing terrorism insurance coverage for commercial clients. Agents and brokers surveyed reported that:
The survey explores the extent that coverage exclusions for terrorist acts are being placed on policies and how they are being applied. IIAA and AAI also sought information about the availability and pricing of terrorism coverage. “This survey validates what our member agent and brokers have been saying for several months,” says IIAA CEO Robert A. Rusbuldt. “Since Sept. 11, the market for terrorism insurance coverage has constricted considerably, but anecdotal information has not swayed opinion in the Senate on the need for a federal backstop. The IIAA-AAI study gives Congress clear evidence that there is a problem in the marketplace—affecting commercial enterprises—that is going to get worse without a legislative remedy.” “Yesterday, President Bush did an excellent job of addressing this issue as he cited several examples of large, high-profile projects that are not getting done because of a lack of terrorism insurance,” says Alliance President Rodger S. Lawson, Ph.D. “This survey clearly shows that the problem goes well beyond those high-profile projects and extends to businesses across the country. It’s an economic issue and a jobs issue that stretches from Wall Street to Main Street.” In the survey, agents and brokers reported that 80 percent of insurance companies have excluded or have indicated that they will exclude terrorism coverage in their commercial (business) policies. Since the terrorist attacks, many reinsurance companies ceased offering terrorism reinsurance, making it harder for both primary insurance companies and agents/brokers to provide coverage for this risk. As a result, business clients either are without terrorism coverage or paying significantly higher premiums for it. The survey found that deepening terrorism insurance anxiety is leading many business clients to ask their agent or broker for assistance. Nearly 20 percent of agents and brokers reported that their business clients are calling with concerns and questions about terrorism coverage. When terrorism insurance coverage can be located, however, seven of 10 agents and brokers said that nearly all of their clients decline coverage because it is too expensive. “These findings illuminate the dual problems of availability and affordability that agents and brokers and their clients are facing every day,” says Rusbuldt. “It’s a double-edge sword: Terrorism insurance is hard to find and when found it is beyond the financial means of most business clients. This quite simply is a survival issue for many business owners. Without affordable terrorism coverage, some businesses will be forced to close their doors, construction projects will not be built and jobs will be lost.” In many cases where an agent or broker is able to locate terrorism coverage for their client, the protection is secured in non-standard markets because coverage is not affordable or available through standard insurance companies. As a last resort, agents and brokers reported they are placing business policies through excess and surplus lines markets, risk retention groups, self insurance, residual markets and special products offered by standard providers. IIAA and AAI have informed the White House and congressional leaders of the survey results. During a meeting at the White House yesterday, the President called on the Senate, which has not approved a terrorism insurance backstop measure, to act before terrorism insurance availability and affordability drag the economy back into recession. He cited examples of terrorism insurance problems and told the labor and business leaders that terrorism insurance is a big jobs issue. “Insurers want to sell policies,” says Lawson. “They don’t want to turn down business. It’s hurting the insurance companies and their agents. But most of all, it’s hurting their customers, the businesses that are the engine of the American economy. The Senate has the ability to end this problem and they should resolve their differences and act.” The survey was conducted online between Feb. 22 and April 3. A total of 957 independent insurance agencies and brokerage firms of all sizes and from all areas of the country completed the questionnaire. Bush wants terror safety net for insurers April 8, 2002 WASHINGTON (CNN) -- President Bush urged the Senate Monday to pass legislation to provide a safety net to insurers covering projects hit by terrorism, a move that consumer groups said is unnecessary. In a speech to labor leaders, Bush said the pace of new construction has dropped dramatically since the September 11 attacks, in part because builders cannot find insurance coverage for terrorist attacks. Non-residential construction is down 17 percent from February 2001 levels, he said "Banks and investors and others will not finance construction projects that do not have terrorist insurance," he said. "You can't borrow money unless there's adequate terrorism insurance, and that's not being provided today." The Hyatt Corp. recently acquired a site for a 1.4-million-square-foot office building in downtown Chicago, he said. The $400 million project would create 2,500 jobs, he said. "But they got a problem finding terrorism coverage, and so they're not getting financing for the project," Bush said. A $2 billion resort in Nevada that would provide 16,000 jobs is on hold because developers can't get insurance for terrorism, he said. In addition, Bush said, the high cost of insurance may force charities to cut services to the needy, and cause teachers' pension funds to lower their rates of return. A bill passed last fall in the House made the federal government liable for insurance claims caused by big terror attacks. But the bill stalled in the Senate. "I expect, for the good of our economy and the good of the country, that the Senate act," Bush said. The Consumer Federation of America dismissed Bush's plea as a bailout for an industry that doesn't need one. "We think it is a bad idea to put taxpayers on the hook for billions of dollars in losses when we have an insurance industry that's actually doing quite well," said Travis Plunkett, legislative director of the consumer education and advocacy group whose 300 member organizations claim a combined membership of 50 million Americans. The insurance industry is having one of its best years ever, having brought in more than $24 billion since the September 11 attacks, which will cost them about $23 billion, he said. "The point here is that the industry is in good shape financially and can pay out terrorism losses. What we need is the president to focus on some price gouging that's going on," Plunkett said. But, he said, some targeted solutions for "trophy" properties such as the Golden Gate Bridge and skyscrapers in Manhattan may indeed be needed. "We have acknowledged there are problems. The question is do they rise to the level of a broad taxpayer bailout leaving taxpayers on the hook for tens of billions of dollars? These problems limited and sporadic and we don't need a bailout," Plunkett said. A spokeswoman for the Insurance Information Institute, a trade association, said the bill would provide much-needed relief. With the potential for big losses from terrorist acts now a real threat, the industry is facing new challenges, she said. "The insurance industry has never priced something like this before, so we have to set some guidelines," said Loretta Worters, the institute's vice president for communications. "It's not a matter of gouging. It's a matter of our industry trying to price this accordingly." No insurers have gone out of business as a result of the terror attacks, she said, though some have been unable to lay off risk to reinsurers. Bush said set to press for attack insurance backup By Mark Felsenthal WASHINGTON, April 3 (Reuters) - President George W. Bush plans to ramp up pressure on Congress to pass legislation providing federal backing for insurance companies in the event of another attack on the United States, industry officials said on Wednesday. The president is expected to argue at an event next week that failure to pass an insurance backstop bill has led to higher insurance premiums and canceled coverage, hobbling the economy just as it emerges from recession. ``We anticipate they (the White House) will step up their efforts pretty dramatically,'' said Joe Rubin, director of congressional and public affairs at the U.S. Chamber of Commerce. The White House declined comment on whether Bush would hold an event on Monday on terorrism insurance but said the issue was important to the Bush administration. ``Terrorism insurance is a very important issue and it is one we have been working with Congress and trying to get passed in the wake of Sept. 11,'' said White House spokeswoman Claire Buchan. The insurance industry hopes the President's involvement will jump start an issue that lost urgency after some of the dire predictions about insurance problems failed to occur. ``It's just a huge boost to have the president come out and do something public,'' said Gary Karr, a spokesman for the American Insurance Association. Insurers have testified to Congress that they could pay claims associated with the Sept. 11 hijack attacks but could not survive a repeat of that event. Businesses had warned they would become particularly vulnerable to rapid increases in premiums and canceled policies after Jan. 1, when many insurance contracts came up for renewal. There has been particular concern in the building industry where loans are usually conditioned on possession of insurance. Congress last year worked on bills that would have required the government to step in after as little as $1 billion in claims, but the measure foundered on partisan differences over liability curbs. A consumer advocate said the federal backstop by taxpayers is unwarranted because, despite sporadic instances of companies struggle to find or pay for insurance, the private market has largely stepped into the breach. ``Many of the doomsday scenarios predicted since Dec. 31 have not occurred -- for the most part banks are lending; for the most part there hasn't been an economic drag,'' said Travis Plunkett, legislative director of the Consumer Federation of America. U.S. Federal Reserve Chairman Alan Greenspan told Congress in late February he had seen no evidence up to that point that difficulties in obtaining insurance were hurting the economy. Profits of Property & Casualty Insurers Plunge From $19 Billion to a $738 Million Loss, According to Weiss Ratings - Terrorist Attacks Drive Up Claims By $23.5 Billion PALM BEACH GARDENS, Fla.--(BUSINESS WIRE)--March 25, 2002--The nation's property and casualty insurers lost $738 million during the first nine months of 2001, compared to a $19 billion profit during the same period in 2000, according to research conducted by Weiss Ratings, Inc., the nation's leading independent provider of ratings and analyses of financial services companies, mutual funds and stocks. The loss is the industry's first since Weiss began rating property and casualty insurers in 1993, and is primarily due to two factors. First, the estimated damages from the September 11 attacks caused reported claims to surge $23.5 billion to $171.8 billion through the third quarter of 2001, as compared to $148.3 billion during the same period the prior year. Secondly, the stock market slump caused the industry to suffer a $6.6 billion, or 49 percent, decline in realized capital gains. ``Fortunately, more than a decade of profits helped some companies build up the capital they'll need to avoid insolvency despite the massive 9/11 claims,'' said Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc. ``But other companies are likely to be more severely impacted by the tragedy, especially those in the business of writing workers' comp insurance.'' Workers' compensation insurance, which covers medical treatment, rehabilitation costs, lost-wage replacements, funeral expenses and death benefits, could become the industry's most vulnerable line of business, as claims are estimated to reach billions of dollars. Although the long-term effects of such a disaster may not be known for years, workers' comp insurers recorded a $1.7 billion loss for the first nine months of 2001, compared to a $161 million loss for the same period in 2000.(1) ``Workers' comp insurance was already a weak line of business for the industry even before the attacks,'' continued Dr. Weiss. ``Now, large, anticipated losses, including those from emotional trauma and stress claims over the coming months and years, will deal the industry a tough blow. As a result, policyholders can expect future rate increases, restrictions on claims, and even some insolvencies.'' Rep. Baker Tells PIA Members Terrorism Insurance Backstop Remains a "Difficult Sell" in the Senate, Says Meeting Planned to Reconcile Differences on Federal Chartering WASHINGTON -- Rep. Richard H. Baker (R-LA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises told members of the National Association of Professional Insurance Agents (PIA National) that legislation to provide a temporary terrorism insurance backstop still faces difficulty in the Senate. Baker made the comment during a speech March 14 at the association's Federal Legislative Summit in Washington, D.C. "It is going to be a difficult 'sell' now to members of the Senate who did not choose to act last year after the House passed its version," said Baker. "There hasn't been much happening in their minds to change their view as to the necessity of a terrorism reinsurance pool. The sad fact is there are a lot of people who have had things happening, who don't want to disclose them for fear of upsetting relationships with banks and other investors." PIA National supports Congressional action creating a temporary federal backstop for U.S. domestic terrorism insurance coverage. Following the September 11, 2001 terrorist attacks, insurers stressed the need for enactment of a temporary terrorism insurance backstop in which the federal government would guarantee some insured losses in the event of another attack. The House of Representatives passed H.R. 3210, the Terrorism Risk Protection Act, but the Senate failed to act by the time Congress adjourned in December. "The only thing in the House-passed version that really is non-negotiable is the repayment mechanism," Baker said. "We did not do that on the airline bailout and I think it was a terrible mistake.Everything else in the bill I think could be restructured. Chairman (Mike) Oxley and I certainly want to work with you to try to get the best product possible. We fully intend to move the bill at the earliest opportunity." Baker called on the PIA members to continue their efforts and praised those in attendance for the work they had done in support of a terrorism insurance backstop bill. He assured the PIA members that their message had been heard by House members, as evidenced by the passage of H.R. 3210 during the first session of the 107th Congress. He also encouraged attendees to meet with Senators and encourage that body to act, but cautioned that with some Senators they will have a hard time selling their viewpoint."We are relying on you as the professionals in the industry to help us sell the Senate that this is something we should act on," Baker told the PIA members. "People in the marketplace who are being affected by this have to come forward and help us establish the fact that there is an economic problem as a result of Congress' failure to act."On the issue of insurance regulation, Baker said a meeting is in the works to reconcile differences in various bills calling for optional federal charters of insurance entities. He said he has been in discussions with Committee Chairman Mike Oxley about convening a special "round table" meeting to get all the bills before the committee at the same time, so differences can be reconciled. He said he and Oxley are contemplating such a session in late April or early May. March 11, 2002 Buffett warns on threat of terrorism to insurers By Robert Cole, City Correspondent WARREN BUFFETT, the almost legendary US investor, delivered a bleak warning on the financial threats posed by terrorism in his latest letter to shareholders in Berkshire Hathaway, the investment company he runs. Mr Buffett said that terrorism could bankrupt the entire insurance industry. He said: “Under a close-to-worst-case scenario, which could conceivably involve $1 trillion (£704 billion) of damage, the insurance industry would be destroyed unless it manages to dramatically limit its assumption of terrorism risks.” He also told investors that the war against terrorism can never be won. “The best the nation can achieve is a long succession of stalemates. There can be no checkmate against hydra-headed foes.” The comments came as Berkshire Hathaway reported the first fall in asset value since Mr Buffett took management control of the firm 37 years ago. The value of assets held fell by 6.2 per cent. Pre-tax profits slumped 68 per cent in the year to December 31. Losses by General Re, a reinsurer wholly owned by Berkshire, accounted for most of the fall. Much of the decline was a result of the damage caused on September 11. Mr Buffett said that the firm lost between $2 billion and $2.5 billion when the World Trade Centre was destroyed. Mr Buffett said the fall in asset value was satisfactory compared with the 11.9 per cent drop in the S&P 500 index. But he added: “Though our corporate performance last year was satisfactory, my performance was anything but. I manage most of Berkshire’s equity portfolio, and my results were poor, just as they have been for several years.” Rating agencies monitoring CMBS terrorism issue By Aleksandrs Rozens NEW YORK, March 1 (Reuters) - Credit agencies Fitch Ratings, Moody's Investors Service and Standard & Poor's, for now, do not expect to downgrade any of the approximately $30 billion of bonds backed by mortgages or leases on large trophy buildings without terrorism insurance. Real estate developers, insurance companies and Wall Street are pressing the U.S. Congress and Senate for legislation that would provide aid or funding to insurance companies in the event of catastrophic property damages from terrorist attacks. ``Moody's is holding off from any near-term move until legislative or insurance alternatives become more clear,'' said Tadd Philipp, managing director of commercial mortgage finance at Moody's. The absence of terrorism insurance has cut off the supply of money for developers looking to finance large building projects in the wake of the Sept. 11 terror attacks. Also, property owners are having trouble refinancing loans or selling existing buildings that are considered trophy properties. ``For now, I do not think we'll downgrade any CMBS (commercial mortgage-backed securities) because the property doesn't have terrorism coverage,'' said Roy Chun, director at Standard & Poor's rating agency. According to Philipp, there have been, to date, no downgrades of deals backed by notable properties due to the lack of terrorism insurance, and, he added, ``We're not contemplating any for the near-term.'' Greenspan says terror insurance no threat to banks WASHINGTON, Feb 27 (Reuters) - U.S. Federal Reserve Chairman Alan Greenspan said on Wednesday that the issue of terror insurance was not a threat to U.S. banks, and that the problem has not affected the economy as a whole. ``We haven't seen any impact of that nature on the banks,'' Greenspan said in response to questions before the House of Representatives Financial Services Committee. ``Much of the problem is that it is presumed that banks won't lend unless a particular borrower has forms of insurance which previously they did not need.'' Greenspan said the issue would only be a problem if construction and real estate activity were held up over concerns about terror insurance, having a potentially significant effect on the economy. ``To date ... that does not appear to be the case.'' U.S. investigators see harm from lack of insurance WASHINGTON, Feb 25 (Reuters) - U.S. congressional investigators said there is evidence sectors of the economy are being hurt by obstacles to obtaining insurance in the wake of the Sept. 11 attacks, according to excerpts of a study released on Monday. ``There are growing indications that some sectors of the economy -- notably real estate and commercial lending -- are beginning to experience difficulties because some properties and businesses are unable to find sufficient terrorism coverage at any price,'' the General Accounting Office said in a report. House Financial Services Committee Chairman Michael Oxley, an Ohio Republican who has been a strong backer of extending federal backing to terrorism insurance protection, released portions of the report ahead of a hearing scheduled for Feb. 27. The difficulties some firms are experiencing could increase as more insurance contracts come up for renewal later in the year, GAO said. ``The resulting economic drag could slow economic recovery and growth,'' the study said. U.S. insurers have said they can pay all claims arising out of the Sept. 11 attacks, but could not support further losses of that size without government help. Many insurers have canceled or boosted prices for commercial terrorism-risk insurance coverage since Jan. 1, when most contracts came up for renewal. U.S. economic policymakers have warned that the prospect of businesses losing such coverage could hurt the economy. But a last-ditch push to clear legislation addressing the issue stalled last year over disagreements over curbs on legal liability. While a wide range of business groups have continued pressing Congress to act this year, aides had said a lack of hard data on which sectors of the economy were being affected, and how seriously, was hurting their cause on Capitol Hill. SWISS RE - SOLUTIONS FOR TERRORISM INSURANCE ZURICH, Switzerland, Feb. 21 /PRNewswire/ -- Swiss Re's new focus report on terrorism concludes that the most promising approach to the problem of terrorism insurance is a public/private partnership. The report addresses the challenges insurers face after September 11 and specifically considers if terrorism risks are insurable. It presents possible solutions that insurers and reinsurers could offer to clients and also considers the role of government. Is Terrorism Insurable? - Prior to September 11, the assumed maximum loss potentials attached to terrorist acts were of a controllable size and were comparable to property losses resulting from fire or explosion. On this basis, terrorism was not explicitly excluded from property policies. However, the magnitude of the loss in the United States revealed a new scope and extent of terrorist threat and has forced insurers to reconsider these assumptions and the insurability of terrorism risks all together.The Swiss Re report finds that increasingly terrorism risks meet fewer of the important criteria of insurability, particularly as it is impossible to accurately assess the probability and severity of terrorist attacks. As a result, terrorism is only insurable on a very limited basis. Swiss Re, therefore recommends that government and insurers work together to develop solutions. Short to Medium Term Solutions - Swiss Re proposes three elements that efficiently combine state and private insurance in the short to medium term. First, mandatory direct insurance, under which all property risks are automatically covered against terrorism risks. Secondly a levy is placed on current property premiums, which could be a fixed percentage or downscaled according to exposure. In the US such a levy would typically need to be around 3-5% of the property premium. Finally, a greater sharing of the loss burden, by further aligning the interests of all parties to these risks, i.e. insureds, insurers, reinsurers and government. Insured parties should carry a significant deductible, of around 5%-10% of insured values. All insured losses would be pooled and the pool reinsured beyond a given deductible by reinsurers, capital markets and government. Swiss Re believes that in the current environment public/private partnership offers the most promising approach as all stakeholders bear a portion of the risk relative to their financial capacity. With large shares of terrorism risks pooled and government assuming the role of insurer of last resort. Please visit http://www.swissre.com to find out more about Swiss Re's focus report ``Terrorism -- dealing with the new spectre.'' NEBRASKA TO DISAPPROVE TERRORISM, NUCLEAR EXCLUSIONS IN PERSONAL LINES INSURANCE LINCOLN, Neb. - The Nebraska Insurance Department has announced it will disapprove terrorism exclusions in personal lines insurance, including exclusions for nuclear and bio-terrorism risks. National Association of Independent Insurers (NAII) Counsel Ann Weber took issue with the decision today, saying it could cause problems for Nebraska insurers due to a lack of reinsurance. "Without a federal backstop, this action by the commissioner could adversely impact the ability of some insurance companies to offer coverage." she said. "Blanket disapproval of all exclusions may jeopardize an individual insurer's financial condition." In a notice of his intention to disapprove personal lines terrorism exclusions, state Insurance Commissioner L. Tim Wagner said: "We believe that it is only a relatively remote possibility that personal lines losses related to terrorism will have an insurer-endangering impact. There is a considerable spread of risk inherent in personal lines, especially in a state like Nebraska." Wagner also said, "We are skeptical that there is much coverage under existing contracts for so-called nuclear and bio-terrorism, "We believe that it would be bad public policy to have significant insurer-to-insurer differences in the coverage for the remote chance that a personal lines policyholder in Nebraska may offer otherwise covered losses arising out of a terrorist act." The National Association of Insurance Commissioners last month rejected a request by NAII that insurers be allowed to include terrorism exclusions in auto and homeowners insurance policies. NAIC previously approved such exclusions in commercial insurance policies. Policyholders Launch Coalition to Seek Passage of Terrorism Insurance Plan ASHINGTON, Feb. 13 /PRNewswire/ -- A number of leading trade associations and individual companies have banded together to speak for business insurance policyholders as part of a continuing effort to win passage of a terrorism insurance plan on Capitol Hill. The groups, representing significant policyholders throughout the transportation, real estate, manufacturing, construction, entertainment and retail sectors, have formed the Coalition to Insure Against Terrorism (CIAT). ``Gaps in insurance coverage against acts of terrorism weaken our economy, and pose a very real threat to our homeland security,'' said Martin DePoy, vice president of government relations at the National Association of Real Estate Investment Trusts® and a spokesperson for the new coalition. ``Unfortunately, the insurance industry has neither the capacity nor the willingness to underwrite comprehensive terrorism coverage at this point in time.'' Coalition members have expressed concerns that unless Congress steps in, terrorism-related coverage will be available only at prohibitively high rates, if at all. ``The economic impact of further terrorist attacks on the businesses represented by coalition members is immeasurable. Without insurance, it could be catastrophic,'' DePoy said. U.S. SEC TO CONSIDER TERROR INSURANCE DISCLOSURES WASHINGTON, Feb 5 (Reuters) - The head of the U.S. Securities and Exchange Commission said on Tuesday the agency will consider whether to require businesses left without commercial terrorism-risk insurance after the Sept. 11 attacks to disclose the loss to investors as a material risk factor.``Clearly in the aftermath of 9-11, it's an issue we have to take a look at,'' SEC Chairman Harvey Pitt told reporters after testifying at an unrelated Senate hearing. ``It's on the agenda of our Division of Corporation Finance,'' which oversees corporate disclosures. Many U.S. insurers have canceled, or significantly raised prices for, terrorism-risk coverage since Jan. 1 -- when most large insurance contracts came up for renewal. A congressional effort to fix the problem by providing a government backstop for insurers failed last year and has not yet been revived. Pitt said the SEC would consider how best to address the issue, whether by providing additional accounting guidance to corporations or by issuing a formal regulation, but stressed no decision had yet been made. ``I don't want to prejudge it,'' he said. The disclosure issue is a sensitive one for industries suffering from the scarcity of terrorism insurance. Supporters of the congressional effort have been trying to gather data on resulting economic problems to bolster their case, but say affected businesses are mostly unwilling to be identified for fear of market and investor reaction. ``We need specific information, and that's the hardest to get,'' Alex Sternhell, an aide to Connecticut Democratic Sen. Chris Dodd, told a conference last week. ``Nobody in this country wants to say: 'I don't have terrorism insurance.''' PIA: NAIC VOTE ON PERSONAL LINES TERRORISM EXCLUSIONS ILLUSTRATES NEED FOR CONGRESS TO ACT WASHINGTON, Feb. 1 /PRNewswire/ -- A non-binding recommendation by the National Association of Insurance Commissioners (NAIC) that states should not approve terrorism exclusions in personal-lines insurance policies demonstrates why Congress needs to enact a temporary federal terrorism insurance backstop, according to a statement issued today by the National Association of Professional Insurance Agents (PIA National). ``PIA was dismayed when Congress did not act to pass a temporary federal terrorism insurance backstop,'' said PIA Senior Vice President of Government Affairs Patricia A. Borowski. ``This inaction demonstrated Congress' failure to understand the impact on insurance markets of the September 11, 2001 events and their unique responsibility to act, and act quickly.'' According to a market report PIA National submitted to the General Accounting Office (GAO) on January 22, 2002, NAIC's late December recommendation for state Departments of Insurance (DOIs) to adopt U.S. domestic terrorism coverage exclusions for commercial lines was a more immediate and easier call. PIA reported the marketplace had and is continuing to be negatively impacted both in the admitted and non-admitted markets without such action. However, in the personal lines market, difficulties are more highly regional and carrier-specific. At this time, PIA members are not reporting an across-the-board, countrywide crisis in personal lines. Rather, they've noted specific problems that are unique to certain geographic areas and types of insurers. ``The basic fact remains: we have a distressed national insurance marketplace that still needs time to get back on its feet,'' Borowski said. ``Given the escalating warnings about another terrorism attack on the U.S., a temporary federal terrorism insurance backstop is still needed and makes best sense in order to support and not threaten our developing U.S. economic recovery.'' WORLD CEOS FACE UP TO INSURANCE PRICE HIKES By Bill Rigby NEW YORK, Jan 31 (Reuters) - Bosses at the World Economic Forum have a new gripe this year -- the shocking cost of insurance. Corporations across the world, but especially in the United States, are paying through the nose for property insurance after the destruction of the World Trade Center. Meanwhile, top executives are struggling to get liability insurance as shareholder lawsuits mount against failed energy trader Enron Corp. and its accounting firm Andersen.``The world is a riskier place than it used to be -- people are just starting to notice that,'' said Peter Porrino, head of Ernst & Young's insurance services division. Insurers have cottoned on, hiking premiums to claw back the $70 billion or so they are expected to pay out for the Twin Towers, and protecting themselves from hefty payouts to settle customers' shareholder lawsuits. In the property insurance arena, the hardest hit are real estate firms with 'trophy' buildings, chemical plants and transport hubs that might be seen as targets. ``We expect a property insurance increase of 40 percent to 60 percent,'' Douglas Linde, chief financial officer of property firm Boston Properties Inc. said last week. His company, which owns about $8.5 billion worth of real estate, including the Citigroup Center in Manhattan and the Prudential Tower in Boston, says it may have to pay up to $20 million for its annual property insurance policy this year, excluding terror cover. Last year the firm paid only $6.4 million, with terror cover. ``The insurance is not available at commercially reasonable rates today,'' said Linde. ``Our insurance advisers believe the most we could buy is $150 to $200 million in property insurance for our entire portfolio. We are effectively self-insuring against this catastrophic risk.'' That means firms -- and the banks that lend them money to buy assets and fund projects -- are running the financial risk of another attack on U.S. soil themselves. Despite high hopes last year, it seems the U.S. Congress will not pass legislation to create a federal backstop for insurers offering terror insurance, after reinsurers abandoned the market. So far only insurer American International Group Inc. has stepped into the breach for specialist terror covers, offering a $150 million per event policy, which pays out for property damage, business interruption, loss of rents and other expenses. That may alleviate some pressure on CEOs looking to guard assets, but it only scratches the surface for companies with large buildings. The market for liability risks, which all CEOs share, is little better. After several years of handing over large sums to firms to settle lawsuits, insurers are clamping down on directors' and officers' insurance, as even greater losses loom in the wake of Enron. ``There is more contagion than there was,'' Ernst & Young's Porrino says. ``And there's greater volatility. Together they argue for significantly reduced risk appetites (of insurers), and increased pricing.'' That means corporations will have to pay much more to buy insurance to protect their directors from lawsuits -- if they can find it at all. S&P: INSURERS TO CUT COVER FOR LOSSES DUE TO TERROR NEW YORK, Jan. 9 /PRNewswire/ -- Several commercial insurers will cut coverage for losses caused by acts of terror, allowing 2001 policies to go unrenewed for 2002, Standard & Poor's said today, adding that the withdrawal from the market will spread beyond property and aviation insurance to include other risks such as employees' workers' compensation coverage rather than assume terror risks implicitly. ``Though they haven't yet, Congress may pass legislation that would help to cap losses to the industry caused by terrorism,'' said Don Watson, a managing director with Standard & Poor's Insurance Ratings group. ``But many insurers will not want to provide significant coverage for terror losses regardless of government action. By their nature, terror losses are difficult to price, and the potential concentration within an insurer's portfolio are such that it would be imprudent for insurers to write coverage without effective reinsurance. And right now, most reinsurers are not willing to provide large policy limits, much less uncapped coverage for terror risk. So some are thinking it's better just to opt out of terrorism coverage altogether.'' For the insurance industry, some relief from terror exposure has been provided in 47 states, which have agreed to allow some exclusions for terror losses; although in three states, New York, California, and Connecticut, insurance commissioners have not publicly followed the National Association of Insurance Commissioners' recommendation to allow some exclusions on terror covers. The concern for insurers writing property/casualty covers is that these states could mandate insurers operating in their jurisdiction to cover acts of terrorism potentially resulting in unacceptable accumulations of risk for insurers. But until Congress acts, or the states mandate coverage, the gap in coverage shifts risk back to the corporate, industrial, and real estate markets exposed to the risk. With many insurers opting not to renew policies that would cover acts of terror to buildings and properties, the businesses previously holding those policies would now have to cover any costs incurred from acts of terror. ``The ratings implications for corporates are likely to be very limited and selective,'' said Sol Samson, a managing director with Standard & Poor's Corporate Ratings group. ``The additional risk may emanate from lack of coverage or much greater expense to obtain coverage. But the impact would be material only in situations where the perceived specific risk of a terrorist incident was high -- just as lack of earthquake insurance isn't a problem in regions that don't face much risk of such natural events.'' Furthermore, the impact would be diluted to the extent a company is diversified, i.e., operates many plants or facilities. In addition, even in cases that might be considered to carry serious terrorist attack potential, possessing insurance coverage could sometimes be irrelevant. ``If cruise ships were perceived as targets, who would take cruises? If a landmark building were viewed as vulnerable to terrorist attacks, what rents could it command? Insurance cover for the boat or building wouldn't resolve the risk exposure,'' Samson added. ``It is not unusual for policies to be signed after their effective |
