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After the Terror: Tragedies Spur Few Credit Rating Downgrades for Life Insurers

Insurance losses attributable to the September 11 terrorist attacks on the World Trade Center and the Pentagon have been estimated at anywhere from $30 to $75 billion. Whatever the final number, it promises to be the largest insurance loss in world history by a sizeable margin, dwarfing the previous record of $15.5 billion attributable to Hurricane Andrew in 1992. Insurance losses attributable to man-made events pale even more in comparison: $125 million for the Oklahoma City federal building in 1995, $510 million for the bombing of the World Trade Center in 1993, and $775 million for the Los Angeles riots in 1992, according to a recent report in Money magazine.

While the attacks will clearly impact property and casualty insurers, they aren't likely to have a dramatic effect on life insurers, which issue the GICs and also provide book-value guarantees for synthetic GICs. Speaking at SVIA Forum, Robert Riegel, Managing Director of the Life and Health Insurance Team at credit rating company Moody's Investors Service, estimated the September 11 losses to life insurers at $2 to $5 billion, or only about 2% to 3% of the life industry's surpluses.

Riegel said Moody's Investors Service had put "about 20-plus" insurance firms under review for a possible credit rating downgrade since September 11, but that none were life insurers. Mark Puccia, Managing Director of the Financial Services Group at Standard & Poor's, said S&P had put a comparable number of insurers on credit watch, while Douglas Meyer, Senior Director of Insurance for Fitch Inc., said his firm had put 17 insurers on "rating watch," only two of them life insurers. "We see no insolvency threats on the life insurance side," Meyer said.

In fact, the ratings professionals said, the terrorism of September 11 could have a positive impact on both life insurers and property and casualty companies once their losses are behind them. On the life side, Riegel said, the attacks could prompt people to reassess their coverage needs and purchase more insurance. On the property and casualty side, the losses sustained this year could lead to a dramatic hardening of the market next year, which could make 2002 a good one for property and casualty profits.

In keeping with that analysis, Meyer said Fitch has a negative outlook on the life insurance industry at the moment, but could revise it to stable by year-end. Puccia said S&P had a "slight negative outlook" on the life industry, noting that it had lowered ratings on three life companies during the first half of the year and expected a comparable number for the second half. Moody's carried a favorable outlook on the life insurance industry. "We give insurance companies high (credit) ratings relative to other financial institutions," Riegel said, citing the generally good quality of the assets on their balance sheets and the tax-advantaged nature of insurance products, which helps to maintain consumer demand for them.

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