Insurers likely to bend, not break

The terrorist attacks on the World Trade Center Tuesday will slam insurers in the gut, but observers say the well-capitalized industry should be able to withstand the blow, which is expected to break records.

"This clearly is going to shake out to be the most expensive man-made disaster in U.S. history," said Sean McManamy, a spokesman for the American Insurance Association, a Washington, D.C.-based trade group for property-casualty insurers. "There is simply no way we can tell more than that right now."

Total claims are expected to surpass the $3 billion that insurers paid out for the Piper Alpha oil platform explosion off the coast of Britain in 1988, the most expensive man-made disaster to date.

Domestically, the cost also should surpass the 1992 riots in Los Angeles, $775 million; the 1993 bombing of the World Trade Center, $510 million; and the 1995 Oklahoma City bombing, $125 million.

The types of insurers to be affected include commercial and personal property-casualty insurers, as well as life, health and auto insurers.

But reinsurance firms, which often cover losses over an agreed amount to protect an insurer from a single massive claim, are especially likely to be hit. "It's staggering," said McManamy.

The collapsed twin towers were valued at $1.2 billion this spring. Insurers also face claims from damage to surrounding buildings, plus the costs of relocating businesses and claims against life, health and auto insurance.

The airlines that owned the planes may also file liability claims against insurers. Most of that insurance is handled by firms in London.

In the hours after the disaster, industry analysts said it was impossible to pinpoint which companies would be hurt the worst.

"However, this event will have far-reaching implications for the insurance and reinsurance industries, and could result in billions of dollars worth of insured damages," said Peter C. Streit, associate director of investment bank UBS Warburg.

One saving grace for the industry, observers say, is that the risk on such large properties generally is spread among the primary insurer and a group of reinsurers.

Chubb Corp., which offers corporate property insurance, said that it has "significant property exposure" at the World Trade Center but that reinsurance should limit its pre-tax losses to $100 million to $200 million.

Across the industry, "certainly a number of companies will be severely hurt by this, but I would be surprised, at least in the property-casualty world, if this would actually take a carrier down," said Stephan Petersen, an analyst with Cochran, Caronia Securities, a small Chicago-based investment bank specializing in insurance.

Also, a number of reinsurance firms are "strongly capitalized and have conservative balance sheets," said Travis Pascavis, a stock analyst with Morningstar Inc., a Chicago-based financial research firm.

Still there will be pain, which could start showing up in third-quarter earnings reports, he said.

Locally, some insurance powerhouses were starting to grapple with the damage.

Most immediately affected was Aon Corp., a Chicago-based insurance underwriter, consultant and brokerage with more than 1,100 employees at the World Trade Center.

The company was still trying to account for its employees late Tuesday afternoon.

Chicago-based CNA Financial Corp., one of the largest insurers of commercial business, was forced to cancel a meeting Tuesday in New York with major stockholders and potential stockholders.

CNA's New York office employs 300 workers just blocks from the World Trade Center.

"We could have had a large number of employees traveling and we have been checking and rechecking the flights," said CNA spokesman Charles Boesel. The company said it was too soon to assess the impact on its operations.

State Farm Insurance, based in Bloomington, Ill., had reaction teams poised outside of New York City waiting to be allowed in to assess damage, said spokesman Phil Supple.

Tribune staff reporter Bruce Japsen and Tribune wire services contributed to this report.