Swiss insurers look back on difficult year

The insurance industry is looking at new ways to cover the terror risk swissinfo.ch

The Swiss Insurance Association has been looking back at an extremely turbulent year which has seen declining income across the sector.

Although premium revenues reached a record high of SFr50 billion ($30 billion) in 2001, stock market volatility, plunging interest rates and the events of September 11 have all taken their toll on earnings.

According to projected figures from the SIA, premium revenue grew by 4 per cent to SFr32.8 billion in direct Swiss life business and by 3 per cent in non-life business to 16.3 billion. Re-insurance premiums contributed to the record premium revenues.

At Wednesday’s news conference in Zurich, the SIA said the earnings situation, however, gave little cause for joy, with profits projected to be well below expectations.

Natural catastrophes

In the year 2000, natural catastrophes such as Hurricane Lothar ate into insurers’ profits. In 2001, the attacks on the World Trade Centre and the Pentagon changed the sector forever, while Swiss companies also had to deal with claims arising from the Gotthard tunnel fire.

Swiss Re and Converium are heavily exposed to claims from the September terrorist attacks.

The SIA said the events of September 11 were the biggest challenge the industry had ever faced with estimates of the total insured losses put at anything between $30 billion and $80 billion. The exact figure is still a matter of conjecture and legal dispute.

“First of all a lot of data is not available,” says Rudolf Kellenberger, a member of the SIA’s board, “Second a lot of facts regarding liability and the proprietary situation are open. And it’s difficult to assess loss of profits because how much is that due to 11 September and how much to the general economic decline.”

Many of the issues involved will be the subject of lengthy courtroom battles. For example, US courts are being asked to consider whether the attack on the World Trade Centre constitutes one event or two.

Potential payout

Insurers fear a decision that says the two aircraft smashing into the Towers should be counted as separate events. They then face a payout of SFr7.2 billion for the collapse of the WTC alone. Classed as one event and the payout will be halved.

In the wake of the terror attacks, aviation insurers terminated coverage for third party liability resulting from war or terrorism, forcing governments to step in. Kellenberger, who is also a Swiss Re board member, defends their action saying they were just exercising a contractual right.

He said they needed time to re-asses the situation.

Analysts’ view

Re-insurance companies have also begun to look again at the terror threat and are limiting cover. Nevertheless, many analysts believe that were terrorists to strike again, the insurance sector would find the catastrophe very difficult to manage. Others are more optimistic.

“I personally am confident that insurance companies would be able to continue,” says Kellenberger, “but of course the capital situation would be reduced and security would be somewhat less.”

The SIA has set up a working party to examine ways of making terrorist acts insurable. One possibility is to follow the French example, where insurance companies have formed a pool covering terrorism losses of up to €1.5 billion (SFr2.21 billion) a year.

And Kellenberger says there is already strong evidence of the insurance sector’s resilience, though at a big cost.

“It’s already been possible for aviation insurers to get cover up to $1 billion per risk so that state guarantees are no longer necessary.”

“There are already those willing to carry the risk, the difference is the price. For liability it’s now six or seven times higher than it was before September 11.”

Kellenberger adds that the economic repercussions of the September attacks are still not fully apparent but certainly the insurance industry is now operating in a world changed forever.

By Michael Hollingdale