Insurers may get help from the US federal government following terrorist attacks according to a recent Lehman Brothers global equity research report on the property/casualty insurance industry.

The report said there had been much press coverage since the September 11 attacks about the potential for the government to step in and help the insurers out with coverage of future terrorist attacks.

However, Lehman Brothers feels the issue is whether reinsurers such as will continue to cover terrorist attack damages.

The report said that since most reinsurance policies are written with January 1 effective dates, the primary insurers will be caught without reinsurance protection if there is another big attack soon.

Lehman Brothers said the primary companies, especially the commerical insurers such as Chubb, ACE, St. Paul and Hartford Financial, will attempt to eliminate terrorist attack coverage from their policies, but will be limited by what state regulators allow, and Lehman Brothers say it is still too early to tell how quickly and how much commerical insurers will be able to limit coverage of commerical insurance.

The Treasury's plan to assist the insurance industry with coverage for the terrorist attacks basically said through the end of 2002, the Federal Government would pay 80 percent of the first $20 billion of insured losses from future terrorism and 90 percent of insured losses above $20 billion, thus leaving the private sector to pay 20 percent of the first 20 billion and ten percent of losses above that amount.

In 2003, the private sector would pay 100 percent of the first $10 billion of insured losses, 50 percent of losses between $10 billion and $20 billion and ten percent of losses above $20 billion.

In 2004, private insurers pay 100 percent of insured losses for the first $20 billion, 50 percent between $20 and $40 billion, and ten percent of losses above $40 billion. The Government would be responsible for the remainder.

To preserve flexibility, in case of an extraordinary attack, the private/public partnership would be limited to $100 billion of insured losses in any year. Congress would determine how to pay for any amount above that.

There would be no coverage from the Government after three years.

Lehman Brothers said however: “The details are far from fully worked out, and no law has been passed. The Senate Banking Committee and the Senate Commerce Committee are also claiming jurisdiction on the issue, both of which are hammering out their own version of the legislation.”

Lehman Brothers said it remains bullish on the pricing and earnings prospects for the reinsurance market place, saying: “in fact our view of the reinsurers prospects has been greatly enhanced by the World Trade Centre disaster. Reinsurers worldwide will pay the largest share of the World Trade Centre disaster - exacerbating losses, accelerating exit of some participants from the market and accelerating price increases.”

Lehman Brothers estimate that roughly 25 percent of capacity will leave the reinsurance market this year. Many reinsurers have lost money as a result of the World Trade Centre disaster - among other reasons such as the recent decline in the equity market.

Many reinsurers are also restructuring, pulling back or leaving reinsurance business for a variety of reasons but mostly due to a lack of profits even prior to the World Trade Centre Disaster.

Lehman Brothers said it has already observed many companies withdrawing or pulling back from the reinsurance market such as Hartford, Zurich, ING Scor and QBE.

Reinsurers are estimated to be liable for $12 billion from the World Trade Centre Attack, with several Bermuda-based reinsurers ranking in the top 20 liable companies.

The three companies with the largest claims, Berkshire Hathaway with $2.2 billion, Munich Re with $2 billion and Lloyds with $1.9 billion make up more than 50 percent of the total reinsurance losses.

Bermuda-based Partner Re has the eight largest claim with $400 million in losses, while Trenwick is liable for $100 million.

Other Bermuda-based insurers facing claims include IPC Holdings Ltd who are liable for $95 million, Odyssey Re is liable for $80 million, Renaissance Re is liable for $50 million and PXRE Group Ltd. is liable for $35 million.