$30 Billion? $75 Billion? The Guessing Continues

Property-casualty insurer loss estimates from the Sept. 11 terrorist attacks are changing faster than weekly newsmagazine pages can be printed, with the latest revisions fueling industrywide “guesstimates” headed toward $100 billion.

All the guessing and revising, however, is happening well before claims adjusters have even had a chance to move into the area of the tragedy.

With its “Response Nine-Eleven” team mobilized and poised to move from Parsippany, N.J., to Williams Street in lower Manhattan, Rob Meyers, executive vice president of GAB Robins, said his firm is working on many dozens of “major claims.” But “the numbers of claims are developing everyday. By the time you go to press, that number will be wildly outdated,” he said.

Industry estimates are quickly outdated also. Ultimate industry estimates climbed from $15 billion the day after the attacks to $30 billion in less than a week. Days later, consultants were developing monstrously higher figures and individual companies began announcing a second round of estimates.

Tillinghast-Towers Perrin in New York issued a report estimating that total losses could go as high as $58 billion, keeping the once-popular $30 billion figure at the low end of its range. At Milliman U.K., consultants concluded that a cost range of $75 billion-$100 billion did “not appear unreasonable.”

In total, beginning on Sept. 20, at least 15 p-c insurers and reinsurers (shown on the accompanying chart) added more than $5 billion to estimates in the aggregate. Some, like Lloyd's of London, posted their first official numbers, while others increased estimates anywhere from 40-to-300 percent. (First estimates and revisions released after Sept. 20 are “Current Averages.”)

But it was Berkshire-Hathaway that gave the first clue that estimates for the entire industry were headed skyward, saying that while its first “guess” that it would incur 3-5 percent of industry losses remained valid, its “present guess” was $2.2 billion in pre-tax losses.

Berkshire-Hathaways percentage range and “present guess” imply industry losses over $70 billion, an anxious analyst pointed out during a recent conference call held by Standard & Poors.

“We don't want to endorse any estimate,” said Mark Puccia, a senior analyst for S&P in New York. “We know this will be in excess of $20 billion. Whether it will be $30, $50 or $70 billionits early days. It's just way too soon,” he said.

“If you look at prior catastrophic events such as Hurricane Andrew, it was quite common to see initial estimates come out at one dollar figure and [for] those to sometimes double, even tripleas we moved a few months down the road,” he said.

“Clearly, this is like no other catastrophe from a lot of different perspectives,” GAB Robins Mr. Meyers said. “One of the biggest issues surrounding this is the whole business interruption environment,” he said.

Business interruption is, in fact, the coverage that shows the widest variation in estimates put forth by consultants and investment analystswith Tillinghast setting its low estimate at $3.5 billion and Milliman suggesting that $15-$25 billion is “not unreasonable.” But its not the only coverage with far-flung estimates.

For the liability line, one needs only to look in the Tillinghast report to find a range almost as wide. “Our range of $5-$20 billion…is essentially an educated guess,” the report says. “The low end of the range reflects the basic facts of the situation: plaintiffs will be very sympathetic, and defendants with very deep pockets.” The high end “assumes a broad set of actions, involving many plaintiffs and many defendants.”

Milliman assumes 10,000 deaths, at $2 million per person, will result in $20 billion in liability claims.

For commercial property, while four investment analysts put estimates in the $6-9 billion range, Tillinghast estimates $10-12 billion and Milliman, $20 billion.

The experts agree on a tighter $2.5-$5 billion range for workers compensation, but make very different assumptions to get there. Milliman, for example, uses a 50,000-claim scenario, assuming each case might cost $50,000. Several investment analysts reports, instead, put a $400,000-$600,000 per claim values on 5,000-6,000 claims.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 1, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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