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Economics of the aftermath of that dreadful day

Heavy responsibilities: Bermudian insurance leaders, Brian O’Hara and Brian Duperreault, CEOs of XL Capital and Ace Group, respectively, among the insurance leaders speaking with US president George W. Bush at the White House on September 21, 2001 about the repercussions of the 9/11 attacks

Twenty years on from September 11, 2001: who does not remember this day?

The horrendous, mortal assault on American soil and innocent lives, shattered the US national psyche in the country considered the inviolate global leader.

Bermuda lost two of our own precious people, Rhondelle Tankard of Aon Bermuda, and Boyd Gatton of Fiduciary Trust, along with hundreds of related professional colleagues, primarily associated with Bermuda’s international re/insurance business industry.

As a community, we grieved for them all, while in the midst of managing the care for thousands of air flight passengers diverted to Bermuda as the United States shut down their borders from sea, land, and air space.

The event, a minimal word that does not begin to describe that lasting horror, left a mark, physically, literally, and indelibly when the thousands of individuals went to work at the beginning of another normal day – and just never came home.

Economics of the aftermath

No matter the grief, the decimation, the reactive emotions, and the functional numbness, everyday life in a disassociating fog does go on. Families had to pay bills, manage households, educate children, the injured cared for while those gone so suddenly were lovingly remembered, and people had to return to employment, just to resume some form of new normalcy.

The uncertainty of the ability of the New York Stock Exchange, the largest centre of our global finance system closed by disruptive damage and possible further terrorist attacks, in resuming operations was palpable.

Yet, the cold, hard reality of stabilising individual financial budget survival, businesses, and mitigating the disruption of the national banking/finance payment/ chequing/credit systems depended on continuation of commerce, maintaining currency liquidity, providing the calming assurance of financial backstops to not just the United States, but trading partners across the world.

Such severe responsibility fell to the US leaders at the time to inject that confidence – that no matter the appalling circumstances, intervention processes must be implemented immediately.

That same day as the tragedy unfolded, the US Federal Reserve, the most powerful economic stabiliser in the world, issued a terse two-sentence press release, stating that “the discount window is open, operating and available to meet liquidity needs”. The Fed further injected $100 billion, in various formats, daily for days following the tragedy, even trucking physical cash to banks for their customers’ immediate liquidity needs. With rigorous determination, amazingly in pure relief, the New York Stock Exchange re-opened one week later.

Analysis of this terrible crisis in retrospective research papers indicated that these immediate actions limited the financial stress of the tragedy’s aftermath by maintaining cash/credit /trading liquidity, such that by end October commerce was operating in some regularity, even though the US economy declined significantly, and eventual recovery took years.

Impact on the insurance industry

Read the eloquent, moving excerpts of that time written by Catherine R Duffy, AIG Country Head, Bermuda, author of Held Captive: A History of International Insurance in Bermuda.

Ms Duffy wrote: “The World Trade Centre, according to its designer Minoru Yamasaki in 1970, is ‘a living symbol of man’s dedication to world peace and because of its importance, should become a representation of man’s belief in humanity, his need for individual dignity, his beliefs in the cooperation of men and through cooperation his ability to find greatness’. Such hopes sound bitterly ironic now.

“The terrorists’ impact on the world of insurance struck at the core of its being. Not only was the insurance world devastated financially - it was also devastated emotionally and intellectually.

“For the first time in the history of the industry, insurance companies had to overcome the deaths of their own before even assessing the effects of a catastrophe on their profit lines. Most people in the industry were numbed by shock, and in no state even to begin to calculate the damages.

“There was a perverse, benighted logic in this. An act of terror intended to shatter the outlook on the life of an entire society, to threaten and undermine all that society’s assumptions as to its strength and stability, had struck deep at the very essence of that to which most people look for security in the event that all else is lost - insurance.

“The twin towers that stood in New York housed thousands of insurance people, men and women who had all been responsible in one way or another for providing some level of confidence, some promise of certainty, some hope of comfort, to those who bought insurance products from them. Yet the same men and women were now destroyed in the very buildings that had been envisaged by their architect as symbols of ‘World Peace’.

Bermuda re/insurers’ significant contributions

September 11, 2001 was the largest exposure to losses ever in the global insurance/reinsurance industries.

The enormity of the amount and kinds of claims resulted in more than 51,000 claims with eventual monetary exposures estimated more than $40 billion. The residual physical, emotional, and financial damage to the survivors and their families may be recognised, but probably never fully quantified.

The Bermuda international insurance industry paid an estimated 10 per cent of these staggeringly huge claims, expeditiously and responsibly – without invoking the terrorism exclusion.

Additionally, Brian Duperreault, chief executive officer of Ace Group, established a $5 million fund for the families of the 9/11 victims, citing this gesture of compassion that while “Ace did not lose any employees, they did lose a lot of friends in the industry”.

In another irony of circumstance, in early 2002, Bermuda reached global insurance prominence bringing an unprecedented $10 billion in new capital to the market, 63 per cent from six big new companies, increasing Bermuda’s actual capacity to an estimated $30 billion.

In memoriam, we remember that day and those precious lives lost, now taking their sad place in our history. Regretfully, 20 years on, 40 per cent of the victims still have not been identified, as their remains have not been found.

Sources

Held Captive: A History of International Insurance in Bermuda by Catherine R Duffy, AIG Country Head, Bermuda

US Federal Reserve Press Release, September 11 2001

Wikipedia: Economic effects of the September 11 attacks

“The Federal Reserve Responds to Crises: September 11 Was Not the First”, Christopher J. Neely, March/April 2004, Federal Reserve Bank of St Louis Review

“The Bermuda behemoth”, Roger Crombie, August 1, 2003

Martha Harris Myron, CPA JSM, a native Bermudian, is the author of The Bermuda Islander Financial Planning Primers, international financial consultant to the Olderhood Group Bermuda, and financial columnist to The Royal Gazette. All proceeds from these articles are donated by the Royal Gazette to the Salvation Army, Bermuda. Contact: martha@pondstraddler.com

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Published September 11, 2021 at 8:09 am (Updated September 13, 2021 at 8:04 am)

Economics of the aftermath of that dreadful day

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