Commercial lines writers, according to ISO extrapolations, could see a combined ratio exceeding 130 for the year.

ISO noted that even before Sept. 11, the p-c industry's total first-half 2001 combined ratio was 111.2.

ISO anticipates that of the $30 billion in Sept. 11 losses anticipated thus far, “we see $25 billion hitting the books for 2001 and $5 billion hitting the books in 2002,” said Mr. Guidette.

He noted that ISO is having “a lot of difficulty in coming up with hard estimates. What were dealing with is a lot of long-tail claims where the full extent of the loss cant be known immediately.” He cited business interruption and rental income claims that require reconstruction of potential income, where documentation might have been destroyed.

Additionally, Mr. Guidette cited delays because of difficulty in reaching areas of the still-smoldering World Trade Center site and problems in assessing damage to buildings with fissures in foundations.

His remarks were echoed by Joseph Annotti, a representative for the National Association of Independent Insurers in Des Plaines, Ill., who said in an e-mail: “We are not yet projecting total estimated losses because of the uncertainty over whether or not many buildings in the area are totaled or repairable.”

The ISO terrorist loss estimate is close to the number in a study for the New York City Partnership and Chamber of Commerce calculated by the consulting firm of A.T. Kearney in Plano, Texas.

Kearneys impact study for the World Trade Center loss estimated that insured benefits were at least $37 billion, including between $4.5 billion and $5.5 billion in life and disability insurance. The companys high-range estimate was $50.2 billion, including life and disability.

“Its still so early,” cautioned Tom Dente, Kearney vice president. The numbers, he said, “are certain to grow.”

Kearney said that $17 billion of the $37 billion total would likely be paid within the first year after the attacks, with a total of $23 billion paid out by the second year. The full $37 billion in claims are not expected to be paid out until the sixth year after the 2001 attack, or perhaps even later.

The consultants said while it is difficult to estimate at this time, “an overall [premium] increase of 20-65 percent in the primary commercial property and casualty market is likely to occur as the cumulative effects of past underpricing of risk are adjusted in new coverages.”

ISO President and Chief Executive Officer Frank J. Coyne said that according to ISO calculations, total gross catastrophe losses for the year “could easily approach $50 billion.” He added that “taking inflation over the past 10 years into account, thats two-thirds more than the losses of 1992, when the industry faced Hurricanes Andrew and Iniki.”

ISO reported that even before Sept. 11, net losses on underwriting had ballooned almost 40 percent from 2000 results, with near-record catastrophe losses for the second quarter putting first-half cat losses over the $6 billion mark.

Through June, ISO said, p-c insurer net income was $2.5 billion, down 75 percent from the $10.5 billion recorded in the same period the year before, while surplus dropped 8.5 percent to $298 billion from $326 billion in first-half 2000. Net investment income for the first half fell 5 percent to $18.4 billion, while realized capital gains dropped 21 percent to $5.5 billion.

Mr. Coyne said projected premium growth could be 12 percent this year, but even that rapid gain would not prevent the 120 combined ratio figure at year-end, he noted.

ISO also noted that new capital is flowing into the industry–estimated at over $20 billion raised or in the pipeline thus far. “Capital inflows are a good indicator of how investors feel about the p-c industrys prospects,” ISO said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 26, 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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