|
QBE today regretfully advised that the potential claims from last
Tuesday's terrorist attacks on the USA could be much higher than the
very preliminary estimates advised last week. Whilst further work
continues, our review to date of covers provided and reinsurance
protections in place throughout the USA, Lloyd's and European
company operations indicates that a substantial part of QBE's
expected profit for 2001 could be utilised by this tragic event.
The final claims cost will not be known for many years and it
will depend on the determination of liability and potential US
government compensation. It is still too early to confirm accurate
numbers for a variety of reasons, including:
· The classes of business which may be called upon to respond to
the 5,000 victims to be identified.
· The number and value of
property and contents damage in and around the World Trade
Centre.
· The loss of policy and claims files held by brokers
based in New York.
· QBE's New York office will not be open until
this week.
Sufficient provisions will be raised in the accounts before year
end for the potential claims, which will be paid out over the next
several years.
The classes of business which we have reviewed as likely to be
affected include aviation war, aviation liability, property,
business interruption, loss of rent, contents, fine art, loss of
security documents, personal accident, workers' compensation, loss
of money, credit card, trade credit, performance bonds, motor,
errors & omissions, directors' & officers', general
liability, professional liability, travel, cancellation of sporting
events, property catastrophe, property excess of loss, personal
accident catastrophe and workers' compensation catastrophe. The
extensive reinsurance protections in place are now considered most
likely to be insufficient to cover aviation liability and personal
accident claims from this event.
Fortunately all QBE US staff are safe, but are under considerable
stress from the loss of many friends and from the death and
destruction they witnessed firsthand.
Mr Frank O'Halloran, CEO of QBE Insurance Group, said "All our
years of careful risk management and our profit record have been
damaged by this tragic event. As is our usual practice, we made
allowances in our plans and our reinsurance protections for major
disasters. However, we did not contemplate a disaster of this
magnitude from the action of terrorists. Therefore, we did not
envisage these terrorist attacks, which involved two commercial
aircraft hitting the World Trade Centre, with two further buildings
collapsing and many damaged, as well as two other aircraft
destroying lives and property in Washington and Pennsylvania". He
added, "This event will change the extent of risks underwritten by
insurers and reinsurers. Terrorism will need to be excluded from
many classes of insurance, unless there is some form of terrorism
catastrophe arrangement, government protection or terrorist pool
such as in the UK. It will also mean further substantial increases
in premium rates, mainly to cover the higher cost of reinsurance and
the reduced reinsurance capacity that is likely to be
available".
QBE advised that its underlying businesses and its balance sheet
remain strong. The Group's capital, after allowing for this
disaster, is still well in excess of APRA's minimum capital
requirement at 1.32 times and shareholders' funds are around $2.0
billion. Mr O'Halloran said, "We believe this will be the largest
ever loss for the insurance industry by a significant margin. It
will therefore test a number of balance sheets. Our review of QBE's
exposure to reinsurers would indicate the majority of our recoveries
from this event are from the larger reinsurers". He further said
"Whilst this year's profitability will be substantially reduced, at
this time it is expected that directors will maintain the dividend
payment at year end".
Our existing reinsurance protections are in place for the
potential of further catastrophes in 2001 and our prudential margins
at 30 June 2001 remain unchanged.
For further information, please contact Frank O'Halloran, CEO,
Tel: 61 2 9375 4400
17 September 2001."
Current QBE share price:$ A 5.80 (- 37% )
Gerry
|
See IRG research reports
