CWERB - Special Report: 9-12 The New Reality Begins

September 11 left the insurance industry with a new reality. It was no longer business as usual. Instead of looking at the past to determine prices and coverage, the industry had to look to the future and assess the potential of more terrorism and the impact on its financial health. The event left the insurance industry questioning how to assess the threatened exposure, its concerns focused on the financial impact and responding or managing reinsurers reactions to the terrorism coverage that existed in most policies. The following pages will focus on four main topics: the direct and immediate impacts of September 11 on the insurance industry; the challenges of meeting financial obligations after September 11; long term impacts of terrorism on the insurance industry, and long term ramifications for business.

There have been other terrorist acts in the past, but none with the magnitude of lost lives and property of the World Trade Center attack.

The terrorist acts of the past were mainly limited to property loss, not human life. The human life lost also impacts the insurance industry. Marsh & McLennan Companies, the largest insurance broker, lost 295 employees in the World Trade Center attack. 2

The World Trade Center claims that were reported by property casualty companies total more than 25,000. 3 This excludes workers' compensation, disability and life insurance claims.

The estimate on the final total of insured damages, from all areas, ranges from $32 billion to $56 billion. This includes the property and casualty losses and estimated $3 to $5 billion of workers' compensation losses. The estimate was only $38 billion in November. 4

The loss estimates are spread across many different companies. Lloyds of London carries the largest estimate at $2.8 billion followed by Munich Re at $2.4 billion and Berkshire Hathaway at $2.3 billion. 5

The September 11 incident impacted many lines of insurance. Some types of claims are obvious: property, interruption of business, workers' compensation, and life. Some claims like event cancellation are less obvious. There were many events canceled in New York and across the country. Exhibit one in the Appendix details types of insurance that are receiving claims from September 11.

The combined ratio is the underwriting profit measurement used in the insurance industry. It is a ratio of premiums to underwriting expenses and losses. The combined ratio does not take into account the investment income that insurers earn on the reserves they hold to pay claims.

Prior to September 11, the estimated combined ratio for 2001 was 108.0. After September 11, it was revised to 118.6. This means that for every dollar of premium collected the industry expects to pay out $1.18. 6

The following chart, displays historical combined ratios. The 2001 estimate is the highest ratio in the past 18 years. Hurricane Andrew caused the spike in 1992.

Both insurers and reinsurers face financial obligations for September 11 claims. A reinsurer insures insurance companies. Reinsurance allows insurance companies to protect their financial strength and provide additional capacity to extend coverage. The type of protection reinsurance provides ranges from individual risks that an insurance company insures (facultative reinsurance) to an entire market (treaty reinsurance), such as coastal properties, or losses over a specific limit. Reinsurers also insure other reinsurers, know as retro sessions, for the same reasons insurance companies seek reinsurance.

Before September 11, reinsurance agreements did not exclude terrorism, only war. Insurers and reinsurers expect to recover 50% of their September 11 gross loss payments from reinsurers. The actual recoveries could be as high as 70% as true losses become known. The 50% figure is higher than the industry has experienced with other catastrophes. For Hurricane Andrew, the last catastrophic event in the U.S., only 35% of loss payments were recovered from reinsurers. The remaining 65% was born mainly by the personal insurance market. 8

In life insurance, the claim liability is expected to be around $2.5 billion, divided among 26 companies. 9

September 11 is also different from other catastrophes in that the loss recoveries from reinsurers may take years to be realized as insurers and reinsurers come to agreement on what is to be recovered. One item for debate was the number of events that occurred on September 11. One might conclude that the World Trade Center disaster represented a single terrorist act. That conclusion, however, may not be correct if you consider how policy limits are applied. The majority of primary and reinsurance policies have a per occurrence or per accident limit. As one event, recoveries would be limited to the stated amount. If the disaster represents two events, there are double the limits available. Silverstein Properties, the leaseholder for the World Trade Center, insists that the disaster be considered two events. Swiss Re, one of the insurers, states it was one event. The difference is worth $3.5 billion. If it is one event, the maximum collectible is $3.5 billion, two events $7.0 billion.10

While the discussions go on, primary insurance carriers are making loss payments and filing recoverables with the reinsurers. The magnitude of the recoverables and the time lag involved may pose problems for some insurers and reinsurers. Insurers carry the recoverables on their balance sheet as an asset, yet loss payments have reduced their cash reserves.11

Though loss payments come from reserves, reinsurers and insurers do not appear to have a liquidity problem in obtaining the necessary cash. One would think that insurance companies and reinsurers were impacted negatively by recent declines in the financial markets. A 1999 study by Hoyt/McCullough on the Correlation of Catastrophe Losses to the Stock and Bond market showed little correlation between catastrophes and the stock market.12

Risk Management Solutions, in their study Managing the World Trade Center Catastrophe, 13 found that the surplus held by the U.S. insurance industry, cash, stock and investments was valued at $298.2 billion as of June 30, 2001. The surplus as of September 2001 fell to $281.9 billion, a 5.5% decrease in three months. The study showed that insurance carriers have invested primarily in fixed income, long-term securities. Insurance companies have indicated that they will meet claim responsibilities through operating cash flow, maturing short-term investments, and other sources of liquidity, without needing to tap into long-term securities.

It was stated earlier that there was no correlation found between the stock market changes and catastrophes. One needs to look a little further at the correlation when there is military action involved. Here the Risk Management Solutions study did find a correlation. The equity markets, valued by S&P 500, reacted sharply, although they did rebound over time. The following table shows some specific examples of market reaction to military events.

Markets have recovered from the declines that shortly followed September 11 and now are trading at values higher than those before the September 11.

Insurance and reinsurance agreements, effective prior to September 11, did not exclude acts of terrorism from coverage though they did exclude acts of war. There was some initial discussion on whether the events of that day represented an act of war and therefore should be excluded. It was quickly determined that they were acts of terrorism. With that decision insurers and reinsurers faced greater obligations.

The prospect of further terrorist attacks prompted reinsurers to reevaluate the risks they were reinsuring and the premiums they charged. In particular, they examined terrorist risk to see if it is indeed an insurable risk.

Economically feasible - must be able to charge a premium that is representative of the risk and affordable

Quantifiable - Past events do not provide information to calculate probability or severity.

Economically feasible - the catastrophic nature casts doubt on ability to charge a premium that is affordable

Normally a risk that does not meet the criteria for an insurable risk is excluded from standard policies. No one contemplated terrorism as a risk faced by businesses. After September 11, reinsurers reacted to this uninsurable risk by contracting coverage exposure. Reinsurers began eliminating reinsurance for terrorism on risks deemed to be terrorist targets. This is being done on renewals of existing insurance policies and on new business opportunities. Reinsurers are not subject to approval of rates or forms by state regulators, as insurers are, so they are able to implement changes quickly to react to risks. The terrorism exclusions are specific to property and casualty reinsurance. With this change in reinsurance coverage, insurance companies had few options that allowed them to cover all of terrorism risk, unless they too have terrorism coverage from their policies. Here are examples of the types of risks that reinsurers consider terrorist risks.

Property reinsurance - Theme parks, places of worship, hotels greater than five stories, airports, landmark buildings such as Seattle Space Needle, New York Stock Exchange, Sears Tower, St. Louis Arch, Carnegie Hall, all professional facilities for baseball, football, hockey, basketball, and many bridges.

Casualty/liability reinsurance - Theme parks, places of worship, airports, private security firms, manufacturing industrial chemicals, alarm manufacturers, aircraft liability, defense manufacturing and flight schools.

With the exclusion of coverage and increase in premiums, the reinsurance market has become more attractive to financial investors. As a result, the industry has raised $24.37 billion of new capital through the formation of new reinsurers and the strengthening of current reinsurers. 15 Even with the new capacity, the financial ability to write insurance has not returned to pre- September 11 days due to the inability to properly assess and price terrorism risk.

Fierce rate competition has dominated the market for insurance over the past five years. The market was considered to be soft as many insurers were willing to decrease their prices and reduce premiums to retain existing business and to write new business. With strong financial markets, insurance companies could realize profits through investment income. The desire for market share drove insurers to take on exposure on risks outside of their areas of expertise. Reinsurance was readily available at affordable prices. Insurance companies underwrote questionable risks with the security that reinsurance would cover risks not fully familiar to the underwriter.

After September 11, reinsurers reacted by tightening on pricing and coverage. The time of four or five reinsurers actively bidding for business was gone. There were fewer quotes, and in some markets, there were no quotes. A significant number of programs renew during the month of January. Reinsurers were still trying to sort out their September 11 exposures and were not able to provide timely quotes to carriers. Reinsurers also waited to see if the federal government would come through with a terrorism program. The House passed a terrorism insurance bill in late November (Business Insurance, December 3, 2001) but the Senate was unable to come to agreement on a similar bill. The result was that businesses anxiously awaited insurance renewals.

As insurance companies received word from reinsurers that specific terrorism risks would be excluded from reinsurance contracts, insurance companies began to reevaluate their increased exposure to financial risk. As mentioned earlier, reinsurers are not subject to form and rate regulation. Insurance companies, however, do face regulation. Insurers did not have options available to reinsurance companies. In some instances, insurers are unable to exclude terrorism or revise the coverage provided. This could cause instability in the insurance market.

The workers' compensation market is highly regulated with state governments controlling rates and coverage. Insurance companies are not able to exclude terrorism coverage in workers' compensation policies. In addition, workers' compensation policies do not have a maximum limit. A policy is issued with a promise to pay workers' compensation benefits, as required by state workers' compensation systems. Whether injury results in a broken leg or paralysis, the worker recovers lost wages and medical costs are paid, with no maximum limit on the policy.

Insurers have begun to limit the types of customers they are willing to do business with. For example, a regional airliner maybe up for a policy renewal covering workers' compensation and non-aviation liability. The insurance company is unable to find a reinsurer to reinsure the exposure. They are also unable to exclude terrorism coverage from workers' compensation policy. The insurer would have two options: carry the exposure and threaten the financial condition of the company or issue a notice of non-renewal. What action do you think a carrier should take to protect their capital?

Businesses and society will feel the effects of risk being shifted from the reinsurers to the primary insurers if another terrorism event takes place.

September 11 has affected the coverage insurance companies offer. In the absence of reinsurance coverage for terrorism, insurance companies have reacted by adjusting the coverage they provide in all their insurance products. There was a concern that another attack would drive some of the major carriers to insolvency, since they would not have reinsurance. Congress adjourned in December without taking action on a terrorism reinsurance bill. This created a need for insurance companies to exclude terrorism from property and liability policies.

The National Association of Insurance Commissioners (NAIC) supported a common exclusion that could be applied to commercial policies. NAIC was concerned with the overall solvency of the insurance industry. The exclusion has been approved for use in 35 states. 16 Insurance carriers have the option of filing for adoption or file their own exclusion. Though exclusions may be added to policies, there is uncertainty as to the effectiveness of the exclusions. Insurance policies represent promises to pay based on the interpretation of policy terms. Each time new definitions and exclusions are added to a policy, the industry faces a period of testing the endorsements by the courts.

Some carriers are providing limited terrorism coverage instead of totally excluding coverage. This removes the problem of contested claims that are likely to occur with full exclusion.

The NAIC has gone on record against terrorism exclusions in personal line policies, specifically homeowners and automobile insurance. In an interview with National Underwriter, Terri Vaughan, NAIC President, stated NAIC members believe that the catastrophe exposure in personal lines is not as great as commercial lines due to a greater spread of risk .17

Indications from state insurance departments that regulate personal lines are that they will not approve exclusions. This action supports the need for a federal terrorist program to allow insurance carriers to have a way to ensure their solvency if there is an attack directed at residences.

In absence of exclusions, insurance companies are encouraging customers to carry higher deductibles and higher self-insured retention.

Insurance companies are taking actions to ensure solvency. After September 11 insurance carriers found that there are more factors to consider than the specific risk itself. A number of insurance companies found that they had a greater geographic concentration of risks in a given area than anticipated. As insurance companies underwrote risks during a soft market, underwriters did not consider the Probable Maximum Loss (PML) from all lines that they had on the books in a particular geographic area. The PML is used in catastrophe modeling.

Since September 11, insurance companies and reinsurers have recognized both a flaw and an omission in their catastrophe risk modeling. Most of the accepted catastrophe modeling looked at known events that have happened in the past and projected the impact of a catastrophe on specific risks. These models did not take into consideration geographic risk of different types of insurance. For example, the models did contemplate an aviation risk affecting all of the lines of insurance listed previously. Most catastrophe models looked at property losses impacting property and lives. The standard catastrophe load of 1% in workers' compensation had been eliminated over time, as it was determined that catastrophes did not have a significant impact on workers' compensation. 18 The event of September 11 changed all of that.

The New York Sate Workers' Compensation Board has received approximately 5,500 workers' compensation claims from September 11. They range from burns to deaths to mental stress. Estimated cost of the workers' compensation claims is in the range of $3 to $5 billion. 19

Because of this impact, the National Council Compensation Insurance (NCCI), the rate making arm of the workers' compensation industry, is filing a 4% increase over 2002 rates for a catastrophe provision in workers' compensation rates. 20

Along with industry modeling changes, underwriters are asking more questions about the risk they are underwriting. They need to determine the aggregation of employees by location and look at the geographic PML. For example, the underwriter needs to know where the 3000 employees for Company A are located. Are they in one building, one state, one city? The terrorism risk is greater for a business that has all employees in one area that is near other possible targets.

Insurance companies took a good look at their security and safety measures after September 11. We all saw and heard the confusion of World Trade Center employees and security efforts. Many of those that survived September 11 did so because they moved quickly after the first hit. They remembered the 1993 bombing of the World Trade Center. To them, the most important thing was to move immediately to get out of the building by taking the most direct routes. Many of the victims who listened to and obeyed the security announcement stating that all was OK did not make it out of the buildings in time. Insurance companies looked at their own evacuation procedures and made sure that they were active and correct. There was a clear emphasis on safety and security.

The type of security provided also affects a valuable insurance company asset: knowledge, stored on paper documents and in electronic files. Insurance is an industry that relies on paper and electronic data to deliver their product. We saw insurance policies, customer correspondence, claim files, investment instruments and procedure documentation scattered after the WTC collapse. September 11 woke up many companies and made them aware of the impact loss of materials can have. Insurance companies need to have an active disaster recovery plan accessible to employees.

There were a number of insurance industry entities in the Towers: Marsh & McLennan, Aon Corp, SCOR Re, Empire Blue Cross & Blue Shield, Metropolitan Life Insurance Co, Guy Carpenter & Co, and Kemper Insurance Cos. Immediately after September 11, those that were prepared activated backup plans. Operations were moved to safe locations. Messages were put on Internet sites. Toll-free lines were established so that employees could call in and obtain current information on company actions. 21 No one will feel safe again.

Insurance companies reacted immediately to reassure customers that they were there for those who had questions, needed a claim adjuster, or needed to report a loss of life.

Insurance companies became aware that implementation of the proper safety measures both could save lives and mitigate losses. September 11 prompted Insurance companies to employ loss control efforts for customers that focused on bio-terrorism, company terrorism, and disaster recovery. Insurance carriers released awareness letters and brochures to homeowners and business. How to information on disaster preparedness became the focus on the Internet and in safety courses.

New opportunities have been created for the insurance industry. There has been increased interest in life insurance, reported by Conning & Co in their review of the life insurance environment. 22 This is confirmed by the MIB Life Index. The Index reported that in October, life insurance applications in Canada and the United States were up 8.6% over October 2000. The October applications were up a sizable 26% compared to September 2001. In pure numbers, that translates to 1.6 million life insurance applications in the U.S. in October 2001. Before September 11 interest in life insurance had been flat. 23

In the Property & Casualty market, terrorism exclusion has generated opportunities for the marketing of stand-alone terrorist coverage. Large U.S. and Bermuda insurers including Berkshire Hathaway, Inc, AIG, and AXIS Specialty Ltd. have entered this market. The coverage specifically limits the amounts of potential claims. 24

Insurance companies are beginning to see the financial markets trade catastrophe bonds. Catastrophe bonds are a capital market substitute for reinsurance. With the industry facing the withdrawal of reinsurers from the terrorist catastrophe market, they need an option to finance the terrorism exposure they face. Investors that purchase the catastrophe bonds receive a return comprised of the interest payments and insurance premiums paid by the reinsurer. If certain catastrophic events occur, the investor could lose some or all of the interest and premium payments. The rates must be set high enough to attract investors. 25

The biggest impact insurers may see is a change in attitude by risk managers. Risk managers face increased prices and tightened coverage. Their challenge is to implement programs that adequately safeguard the enterprise's assets. In some instances, they are required to obtain terrorism coverage as a requirement of leases or building contracts. This is particularly true of malls. Risk managers will have to deal with the fact that lack of terrorism coverage could impact investors attitude. Deputy Assistant Treasury Secretary Mark Warshawsky pointed out that the Securities and Exchange Commission is considering whether to require businesses left without commercial terrorism risk insurance after the September 11 attacks to disclose the loss to investors as a material risk factor. 26

To protect the enterprise, risk managers will look at risk financing and insurance in varying degrees. Use of captive insurance companies, owned by the company, will allow risk managers to use investment income to finance their risk. Once risk managers begin to use alternative risk financing methods, they take business away from the insurance companies. Businesses are feeling the impact of September 11 in leases, loans and building contracts.

In the long term, insurance companies need assistance in covering terrorist exposure. Insurance companies are in business to provide a service at a price that provides profit for stakeholders. As with any other business, investors and companies leave markets when they can no longer meet the expectations of stakeholders. Terrorism can be characterized as a taxpayer responsibility and not an insurer responsibility. The report of the GAO and Federal Reserve Board Chairman Alan Greenspan, advised Congress to move toward creating a federal terrorism backstop to avoid an economic crisis. The GAO report, Rising Uninsured Exposure to Attacks Heightens Potential Economic Vulnerabilities, identified problems that insurers, regulators, policyholders and businesses are now facing or will face in the future.

Richard Hillman, GAO director of financial markets and community investment, points out What is clear is that in the absence of terrorism insurance, another terrorist attack would dramatically increase direct losses to businesses, employees, lenders and other non-insurance entities beyond those resulting from September 11. 27

He also noted that before September 11, insurers didn't adequately price for terrorism because it occurred so infrequently. After September 11, insurers are still finding it difficult to price for the terrorist exposure. Primary insurers are now carrying the major responsibility for terrorist coverage. They are limited in what they can exclude for workers' compensation. Insurers that have not been able to exclude terrorist risk, or chose not to, are still carrying the risk.

There is a need to have a reinsurance facility for terrorist risks to minimize the financial impact another event may cause.

The insurance industry survived the first terrorist attack. The use of reinsurance to protect assets and spread risk, however, was necessary for that survival. Terrorism is a societal risk that needs to be absorbed by society in some form. The threat remains and many are certain there will be more incidents of dimensions and types that are difficult to predict. The insurance industry has the ability to handle resulting damages and injuries from a terrorist event. However, it needs the financial support of a reinsurance mechanism to handle the potential catastrophic financial result.

The insurance industry is still working to find solutions that provide necessary coverage for businesses and protect insurance company capital and solvency. The resulting emphasis on PML will increase the intellectual capital of insurance companies as they install evaluation methods that provide a better analysis of risk across lines of insurance. Increased awareness by businesses of their full financial loss potential will help them to be financially prepared in case of any type of catastrophe. The focus on disaster preparedness will reduce severity of additional terrorist events or catastrophes for businesses and their employees.

We all saw how the U.S. pulled together after September 11. Without some long-term reinsurance mechanism, society and businesses will not be able to survive a second attack of the same magnitude. The terrorists then will realize their goal of financial impact.

Appendix

Aviation: airplanes, passengers, third party liability claims against airline and security firms

Business interruption: relocation, closure, limited access to property and roads

Errors and Omissions: uncovered losses that customers think agents gave bad advice

Disability: inability to resume regular life after injuries both physical and emotional

References

Aldred, Carolyn and Hofmann Mark 2002, March 25. "Government role seen in terrorism risk pools", Business Insurance, page 3.

Brady, Diane 2001 October 29. "Give Insurers a Break But Not a Free Ride", Business Week, page 38.

Bradford, Michael , 2001, September 17. "Crisis triggers backup plans", Business Insurance , pages 2, 21.

Bradford, Michael 2001, September 17. "Crisis triggers backup plans", Business Insurance, pages 1,2.

Bradford, Michael 2002, March 4. "CEO Panel assesses terrorism and how insurers respond", Business Insurance, page 3.

Bradfods, Michael, 2002, March 4. "Buyers increase risk load, Business Insurance", pages 12,14,15.

Brostoff, Steven, 2002, Janaury 28. "Coverage Crisis Looms", Insurers Warn, National Underwriter, page 9.

Brostoff, Steven, 2002, February 4. "Free-Market Arguments Undermine Alleged Need For Federal Terror Re Bill", Business Insurance, page 25.

Brostoff, Steven, 2002, February 11. "SEC Might Order Disclosure Of Lack Of Terrorism Insurance", National Underwriter, pages 5,6.

Brostoff, Steve, 2002, February 18. "GAO Report Key To Federal Terrorism Re Bill", National Underwriter, page 18.

Brostoff, Steven 2002 March 4. "Lack of Terrorism Coverage", National Underwriter, page 6.

Brostoff, Steven 2002 April 1. "Federal Terrorism Reinsurance Ideas get Worse as Debate Wears on",

Ceniceros, Roberto 2002, February 18. "Comp insurers turning to cat models", Business Insurance, page 21.

Company Impact. Retrieved March 30, 2002 from http://www.fsonlone.com/news/enews_archive//enews100101/enews1001.shtml

CPCU News, 2002, January/February "Top Industry Leaders Agree that September 11 Events Will Have Profound Impact on Future of Insurance", Volume 50. No. 1, pages 1, 4, 5.

Dugas, Christine & Block Sandra 2001 November 14. "Insurers ask for future aid", USA Today, page 3B

Edwards & Angell, LLP Insurance and Reinsurance Practice Group, "Impending Insurance and Reinsurance Issues Arising from September 11, 2001", retrieved March 30, 2002 from http://www.insurance-portal .com/ed&angel.htm.

Fletcher, Meg, 2002, February 11. "Bioterror has huge impact on insurance", Business Insurance, page 16.

Fletcher, Meg 2002 February 25. "Regulator, insurer cooperation key to Sept. 11 response: Serio", Business Insurance, page 3.

Gakos, Peter, 2002, February 11. "New Attitudes may affect industry most", Business Insurance, page 10.

Greenwald, Judy 2002 March 18. "Reinsurers paying heed to their risk aggregation", Business Insurance, pages 10, 20.

Harden, Patricia 2002 February 11. "Technology Enabled Speedy Claims Processing After WTC Tragedy", Workers Compensation Report, page 79.

Hartwig, Robert Ph.D., 2002, January 18. "P/C Industrys Nine Month Results: From Ground Zero to Below Zero?", The Standard pages 12,13.

Hays, Daniel 2001, September 24. "Workers' Compensation Losses Might Top $1 Billion", National Underwriter, page 10.

Hofmann, Mark, 2002, January 21. "Uncertainty adding impetus to rate hikes", Business Insurance, page 3.

Musulin, Rade, Thomas 2002, March 4. "Terrorism Cover: An Axis of Uncertainty", National Underwriter, pages33,34.

Hays, Daniel, 2002, February 18. "Bankers End Up Plugging Terrorism Insurance Gap", National Underwriter, page 5.

Hofmann, Mark. 2002 March 4. "Need for terror cover cited", Business Insurance, page 35.

Hofmann, Mark, 2002, March 11. "Federal Government has duty to people", Business Insurance, page 6.

Howard, Lisa, 2002, January 7. "New Re Players Could Soften Market", National Underwriter, pages 22,23.

Howard, Lisa, 2002, February 18. "New Bermudians Ease Cat Rate Hikes", National Underwriter, page 13.

Howard, Lisa, 2002, February 18. "Insures Scramble For Cover in Chaotic Property" RE Market, National Underwriter, page 12.

Howard, Lisa 2002 February 18. "Pricing Competition Returns to Re Market", National Underwriter, page 6.

Howard, Lisa, 2002, March 4. U.K. "Uses Captives To Tap Terror Pool", National Underwriter, page 16.

Howard, Lisa, 2002, March 11. "Terrorism, Like War, Called Uninsurable", National Underwriter, page 6.

Lenckus, Dave 2001, November 12. "Interruption claims to spark litigation", Business Insurance, pages 1, 38.

Massman, Susan 2001, September 24. "War Risk Exclusion Legal History Outlines", National Underwriter, page 40.

Massman, Susan, 2002, February 11. "Terrorism Exclusion Wording Unclear", National Underwriter, pages 21,23..

Mazier, E.E. 2002, February 4. "Reinsurers Can't Afford Another 9/11", National Underwriter page 26.

Mazier,E.E. 2002 February 4. "NAIC Votes Against Terror Exclusions In Personal Lines", National Underwriter, page 5.

McDonald, Caroline, 2002, March 11. Sept. 11 "Exposed Insurer Modeling Flaws", National Underwriter, page 5.

McLeod, Douglas 2001, September, 17. "Industry reeling amid loss of life", Business Insurance pages 2, 21.

McLoed, Douglas 2001, December 17. "Tragedy touches entire market", Business Insurance, pages 2,3.

McLeod, Douglas, 2002, January 21. "Conning study finds P/C rates not rising quickly enough to offset high losses", Business Insurance, page 20.

McLeod, Douglas 2002 March 18. "Rapid influx of capital may shorten hard market", Business Insurance, page 10.

Mooney, Sean, 2002, February 25. "Check rearview Mirror on Terrorism Risks", National Underwriter, page 25.

Pilla, David 2001, November . "Litigation Concerns Emerge", Best's Review , pages 41- 46.

Risk Management Solutions Inc 2002. "Managing Risk in the Aftermath of the World Trade Center Catastrophe", pages 11,12,13,14,15,17.

Ruquet, Mark 2002, January 7. "Marsh Bolsters 9/11 Victims Fund", National Underwriter, page 6.

Ruquet, Mark, 2002 March 11. "Terrorism Coverage Hard To Come By", National Underwriter, page 12.

Sclafane, Susanne 2001, September 24. "Business Interruption Insurers Expect 'Ripple Effect' From Terrorist Attack Claims", National Underwriter, page 11.

Sclafane, Susanne, 2001 September 24. "Can Insurers Handle Losses?", National Underwriter, pages 5,6.

Sclafane, Susanne 2001 December. "Third Qtr. Results Grim, But Worst Is Yet To Come", National Underwriter, pages 6,7 .

Sclafane, Susanne 2002 January. "P-C Insurers record First Net Loss Ever", National Underwriter, page 6.

Sclafane, Susanne, 2002, February 18. "Casualty Re Not Quite A Seller's Market", National Underwriter, pages 14,15.

Swiss Reinsurance Co, January 2002. "Natural catastrophes and man-made disasters in 2001", sigma No 1/2002, page 17.

Unsworth, Edwin 2002 , February . "Terrorism risk calls for public/private pool", Business Insurance, page 2.

Veysey, Sarah, 2002 , February 18. "Terror coverage market grows", National Underwriter, pages 17,19.

Veysey, Sarah 2002 March 25. "Risk Managers, Brokers, decry lack of insurer aid.", Business Insurance, page 16.

Winston, Paul & Souter, Gavin, 2001, September 17. "Reinsurers see long term effects", Business Insurance pages 3,22 .

Zolkos, Rodd, 2002, February 18. "Terror hits new construction not all projects finding cover", Business Insurance, pages 1,20

* Any opinions stated herein nions of the author and not of Sentry Insurance.

1 Swiss Reinsurance Co, January 2002. "Natural catastrophes and man-made disasters in 2001", sigma No 1/2002, page 17.

2 Ruquet, Mark 2002, January 7. "Marsh Bolsters 9/11 Victims Fund", National Underwriter, page 6.

3 Fletcher, Meg 2002 February. "Regulator, insurer cooperation key to Sept. 11 response: Serio", Business Insurance, page 3.

4 Bests Review 2002, January , pages 28, 29.

5 ibid.

6 Sclafane, Susanne 2001 December. "Third Qtr. Results Grim, But Worst Is Yet To Come", National Underwriter, pages 6,7.

7 .ibid.

8 Risk Management Solutions Inc 2002. "Managing Risk in the Aftermath of the World Trade Center Catastrophe", pages 11,12,13,14,15,17

9 Bests Review 2002, January , page 28.

10 Bests Review 2002, January , pages 24, 25.

11 .Risk Management Solutions Inc 2002. "Managing Risk in the Aftermath of the World Trade Center Catastrophe", pages 11,12,13,14,15,17

12 ibid.

13 ibid.

14 ibid.

15 McLeod, Douglas 2002 March 18. "Rapid influx of capital may shorten hard market", Business Insurance, page 10.

16 Terry Vaughan, 2002, April 5, NAIW Conference Presentation, Des Moines IA.

17 Mazier,E.E. 2002 February 4. "NAIC Votes Against Terror Exclusions In Personal Lines", National Underwriter, page 5.

18 Ceniceros, Roberto 2002, February 18. "Comp insurers turning to cat models", Business Insurance, page 21.

19 Harden, Patricia 2002 February 11. "Technology Enabled Speedy Claims Processing After WTC Tragedy", Workers' Compensation Report, page 79.

20Ceniceros, Roberto 2002, February 18. "Comp insurers turning to cat models", Business Insurance, page 21.

21 Bradford, Michael , 2001, September 17. "Crisis triggers backup plans", Business Insurance , pages 2, 21.

22 The Standard, 2002, February 15, page 23.

23 Bests Review 2002, January , page 28.

24 Veysey, Sarah, 2002 , February 18. "Terror coverage market grows", National Underwriter, pages 17,19.

25 Panning, William,2002, February. "Shocks and Bonds", Best's Review, page 64.

26Hofmann, Mark. 2002 March 4. "Need for terror cover cited", Business Insurance, page 35.

27 The Standard , 2002 March 8, pages 1, 10,11,12.

Top Five Costliest Insured Losses Due to Terrorist Attacks

In millions of dollars (2001 price levels)

Event

Decline in S&P 500

Appendix

References