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Lloyd's Raises Loss Estimate for Sept. 11

Insurance: Claims are expected to total $2.7 billion. The company says it will need a cash call to cover rising costs.

November 28, 2001|From Times Staff and Wire Reports

Lloyd's of London raised its loss estimate from the U.S. terrorist attacks by nearly 50% on Tuesday and said it would need to tap its members for extra cash to pay an estimated $2.7 billion in Sept. 11 claims.

But the chairman of the 300-year-old insurance market, which has overcome near-bankruptcy and fraud probes in recent years, maintained that Lloyd's could meet its financial obligations--in part because of sharply higher premiums many insurers have been able to charge since the attacks.

"Our financial performance is turning the corner rapidly with a 40% increase in premium income written this year," said Chairman Sax Riley.

Insurance brokers have reported premium increases of 10% to 50% in various lines, including commercial auto and property insurance, general liability, workers' compensation and business interruption insurance. The increases are attributed to the Sept. 11 attacks, which brokers say enabled companies to raise prices.

Premiums for insurance sold to consumers, such as auto and homeowners' coverage, are also on the rise, but many experts attribute the trend to factors not related to terrorism, such as higher medical costs, bigger jury awards in trials and higher construction costs.

Investors have responded by bidding up the price of publicly traded insurers in recent weeks. American International Group has seen its stock rise 23% since Sept. 21, even after repeatedly raising its estimates for terrorism claim costs to $800 million. AIG rose $1.61 to $82.56 on Tuesday; Chubb Corp. rose $1.85 to $70.27; and Everest Re climbed $1.37 to $70.55--all on the New York Stock Exchange.

Besides Lloyd's, insurers reporting the biggest losses include Munich Re with $1.9 billion in claims costs before taxes and Swiss Reinsurance with $1.2 billion.

Lloyd's promises to pay its claims, but the rising losses could spell disaster for some of its members, which include companies and wealthy individuals who back Lloyd's 108 syndicates. The costs may force some syndicates to close, said Nicholas Johnson, an analyst at Numis Securities, which acts as broker to four Lloyd's companies.

Lloyd's operates as a market in which the various syndicates use their capital to underwrite insurance policies. These members are required to contribute cash if needed to pay claims.

Lloyd's Finance Director Andrew Moss said a cash call, which had been planned for February even before the attacks, would be needed to help cover Lloyd's massive bill from Sept. 11.

The losses also may limit the amount of new business written at Lloyd's just as the industry benefits from the biggest price increases in decades. Lloyd's demand for more cash from its syndicates means that those members may have trouble raising more money to back new policies.

The World Trade Center disaster will exceed the bill for catastrophes such as Hurricane Hugo in 1989, which cost the Lloyd's market $1.3 billion.

Even so, claims related to asbestos poisoning remain the biggest payout Lloyd's has faced. Lloyd's faced collapse because of asbestos-related health claims in the U.S. and a series of natural disasters from 1988 to 1992. The market faced probes in the U.S. and United Kingdom over the way it recruited investors during this period.

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Bloomberg News, Reuters and Associated Press were used in compiling this report.

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Betting on Higher Premiums

Shares of most major property/casualty insurance stocks and insurance brokerages have rebounded sharply since the market's three-year lows reached Sept. 21. Investors are betting on higher insurance premiums in 2002.

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Gain 52-week Sept. 21 Tues. since Stock (ticker symbol) high price close Sept. 21 XL Capital (XL) $96.50 $62.00 $92.50 +49% Everest RE (RE) 78.50 49.38 70.55 +43 Brown & Brown (BRO) 31.50 22.15 30.81 +39 Loews (LTR) 72.50 41.75 56.30 +35 Marsh & McClennan (MMC) 127.50 82.02 108.80 +33 Safeco (SAFC) 35.88 26.02 32.30 +24 Amer. Intl. Group (AIG ) 103.75 67.05 82.56 +23 Hartford Financial (HIG) 80.00 50.10 59.65 +19 Chubb (CB) 90.25 59.50 70.27 +18 Berkshire Hath. (BRK/B) 2,515.00 2,084.00 2,250.00 +8 Cincinnati Financial (CINF) 42.93 37.29 39.95 +7 S&P 500 index 1,389.05 965.80 1,149.50 +19%

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Sources: Bloomberg News, Reuters

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