$142bn Pall Hangs Over Insurance Industry
Sydney Morning Herald
Thursday September 20, 2001
Escalating estimates of the final insurance bill from the World Trade Centre attacks, now running as high as $US70 billion ($142 billion), have prompted ratings agencies to ring alarm bells about the potential damage being inflicted on the industry.
Revising its initially sanguine view for the sector, Standard & Poor's said its own survey of insurers had tallied $US14 billion in claims from the event so far, a figure that had risen from $US4 billion in the space of a few days and was likely to rise substantially.
S&P also lowered its view of the Australian insurer most exposed, QBE Insurance, cutting its credit rating to A from A+. Despite this, QBE shares recovered 56c to $5.67.
Some broking analysts argued the shares had been sold down too hard, having virtually halved in little more than one week. QBE warned on Monday its full-year profit could be wiped out by WTC losses across a long list of insurance classes.
S&P's director of financial services ratings, Mr Michael Vine, said QBE's solvency would fall from historically strong levels and another capital raising may be required to bolster its balance sheet. ``To meet their growth expectations they do potentially need to strengthen their balance sheet," Mr Vine said.
While QBE was singled out yesterday, S&P said it put many insurers and reinsurers on ``creditwatch with negative implications", a signal their ratings might be downgraded in the coming weeks and months.
If the industry bill exceeded $US50 billion, S&P said, it would begin to have worries about the insurance system. Major insurance companies have generally indicated they will honour claims rather than contest them on ``act of war" exclusions though, in future, they might write new policies that exclude liability for acts of terrorism.
Much could also depend on whether the situation worsens to the point that the US Government provides some support to the industry. But the Government already faces the bill for the Pentagon because it does not insure its own property.
Australia's insurance regulator, the Australian Prudential Regulation Authority, is taking a close look at QBE at the prompting of the Minister for Financial Services, Mr Hockey.
He told Parliament on Tuesday: ``QBE has advised the market and APRA, the prudential regulator, that its underlying businesses and its balance sheet remain strong and that, even with these provisions, it meets our new general insurance prudential standards by a factor of 1.32 times."
© 2001 Sydney Morning Herald
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