The Bermuda insurance market is clearly the big winner in the wake of the September 11 terrorist attacks on the World Trade Center towers, delegates at one of the world's largest insurance conferences were told yesterday.

The September 11 attacks may cost insurers around the world as much as $58 billion by the time all claims are settled, Brian Merkeley, consultant with Tillinghast-Towers Perrin, told delegates at the annual Risk and Insurance Management Society yesterday - more than the two previous largest catastrophes combined.

But Bermuda had benefited from the influx of new capital into insurance companies after the attacks due to the concentration of insurance expertise on the Island and because of Bermuda's tax structure, which allowed insurers to build up reserves to meet claims from major catastrophes, said John Shettle, managing partner with Swiss Re-Securitas. More than 200 people attended the RIMS session entitled “The Harsh Reality: A post 9/11 State of the Industry”, which also featured speakers Jenny Emery, principal and consultant with Tillinghast-Towers Perrin.

Mr. Merkeley said insurance rates were beginning to rise after a 12 year “soft market” before September 11, but the attacks dramatically increased insurance premiums.

“How big was 9/11?” asked Mr. Merkeley. “Over 20,000 claims have been paid totalling about $10 billion. Our estimates project losses of between $30 and $58 billion, and for most primary insurers and reinsurers, 9/11 is likely to be larger than the two previous largest catastrophes combined, namely Hurricane Andrew in 1992 which was $20 billion and the Northridge earthquake in 1994 which was $16 billion.”

Mr. Merkeley, said an analysis of stock prices after the attacks showed Bermuda insurers were far out in front, US insurers performed well, European insurers were mixed and Lloyds of London was the biggest loser.

Mr. Merkeley said commercial property rates for high risk properties more than doubled by the end of 2001 while “for medium and large accounts, rate increases have averaged between 30 and 50 percent and for the smaller accounts the average has been between 10 and 30 percent”.

“We have seen underwriting become increasingly selective, good customer credit has reduced or been eliminated, policy holders have been reclassified from being elite to preferred or standard, and there has been an elimination of terrorism coverage from the basic comprehensive policy which is forcing buyers to go out and purchase separate terrorism coverage.

“There has also been an increases in the valuation of buildings which has resulted in an increase in the exposure base. With respect to the long-term effects of all this, I think it is still too early to tell whether the effects are a short-term response or a more permanent market shift,” he said.

Mr. Merkeley said there had been a great deal of new capital entering the market, $20 billion from existing companies and $7.5 billion coming from start-ups, mostly in Bermuda.

He added: “Traditionally, pricing will moderate and coverage terms will become more reasonable following the influx of new capital, but we all realise that another catastrophe similar to 9/11 could short-circuit the whole cycle.”

Mr. Shettle said: “Clearly since September 11, if we look at the major European reinsurers, they actually took the biggest run of the losses and it has impacted on their stock prices and the ability of their stock prices to recover.” And he said this particular cycle was very much “reinsurance driven”.

Referring to earlier figures he added: “Interestingly, I think this also shows some kind of winners and losers in terms of how the market place has discounted the future prospects of these businesses set out in these different genres. Clearly with respect to the Bermuda-based companies they have come through this as big winners going forward. Not only the existing players have had good stock market appreciation, but in addition they have been able to attract an enormous amount of new capital as well.

“I think for a lot of reasons capital has been very free to flow to Bermuda and I think that clearly there is a tremendous amount of competencies built in Bermuda, particularly in the property and catastrophe lines which have been most affected by what has occurred in 2000 and 2001. Secondly, the tax status in Bermuda is very attractive from an investor's perspective, particularly in the CAT lines where you go eight or nine years generating, at least on paper, what you think are enormous profits that are then all taken away in the ninth or tenth year. So to have all those false profits taxed away in other jurisdictions whereas Bermuda is much more tax effective I think is one of the reasons why capital has flowed to Bermuda and stock prices there have appreciated.

“Interestingly the loser here has been London and the Lloyds markets in particular. They have had a difficult time raising new capital and their stock prices have depreciated,” he said.