MPR: St. Paul Cos. predicts big losses from attack coverage

St. Paul Cos. predicts big losses from attack coverage
By Mark Zdechlik
Minnesota Public Radio
September 19, 2001

The Minnesota-based St. Paul Companies, one of the nation's largest business insurers, says it's projecting nearly $750 million in losses from last week's terrorist attacks. Despite the heavy cost, the company says it stands ready to pay all of its claims, and that it has sufficient assets to handle the losses.

Doug Leatherdale, CEO of the St. Paul Companies, says he's confident his firm can weather the huge losses it will see because of the terrorist attacks in New York City. Listen to his comments.
(Photo courtesy of The St. Paul Companies)

THE ST. PAUL COMPANIES SAYS ITS ESTIMATE OF LOSSES FROM THE TERROR ATTACKS are early numbers based on industry-wide projected losses of between $30 billion and $35 billion.

CEO Douglas Leatherdale says his company stands to pay out a total of about $700 million through its primary insurance businesses, along with its reinsurance operations and its interest in Lloyd's of London. Leatherdale says the $700 million figure represents - by far - the insurance giant's largest ever single-event loss. He warns the current number is preliminary.

"At the moment, we have a fairly high level of confidence that the estimate we put out is the right one. But I wouldn't say that with 100 percent confidence, because we're clearly dealing with a very fluid situation here," Leatherdale says.

Despite the massive loss, Leatherdale says the St. Paul will be able to handle the claims, thanks to the company's $35 billion in assets - what he says is among the industry's strongest balance sheets. Leathedale also says the St. Paul Companies will not "hide behind war time exclusions" in hopes of avoiding any damage payouts.

"Despite the rhetoric the president was using, in the insurance sense this was not a war," says Leatherdale. "War had not been declared between two sovereign nations and it was clear to me the wording of policy simply did not apply here."

And Leatherdale notes, the precedent of insurance companies covering terrorist-related losses was set after the first attack on New York's World Trade Center in 1993.

When equity markets reopened this week, there was broad expectation insurance companies - like the airlines - would take a big hit. St. Paul Companies stock is down a little more than eight percent since the beginning of the week, reflecting investors repricing the company, taking into account projected losses related to the New York attacks, according to American Express analyst David Benz. Benz agrees with St. Paul Companies' management that its strong asset base enables it to cover the claims. Still, Benz says, the massive payouts will be painful.

"This one event alone will effectively wipe out at least one year's operating income for the entire insurance industry," says Benz. "As a result, rates will continue to go up, at higher rates than previously expected. I was expecting rates to go up maybe 15 percent for example, my expectation is that number is probably something more like 25 percent."

Although the insurance industry will be left with much of the cost of rebuilding a good portion of New York's financial district, unlike the airlines, insurance companies are not lining up for help from Washington. Insurance Institute Vice President P.J. Crowley says, while massive, the cost will be spread among many companies in many countries.

"There will be a wide impact on the industry overall. But by the same token, industries have anticipated these kinds of disasters before. Where there's such a significant insured risk represented by something like the World Trade Center, the risk is spread literally across the industry and around the world," says Crowley.

Although commercial insurance policies for U.S. properties have not traditionally included exclusions for terrorist attack-related losses, that's not the case in other parts of the world. St. Paul Companies CEO Douglas Leatherdale says that - like so many things in this country - will likely change in the wake of the New York disaster.

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