The US insurance industry - hard hit by the Sept. 11 terrorist
attacks - is slowly inching back toward recovery. Stock prices for
many insurers are now equal to or higher than share prices on Sept.
10. Many firms, moreover, surpassed market expectations for the
first quarter of this year.
As a group, the insurance sector was in the black for the first
quarter of 2002, according to a composite analysis by Business Week
That in itself is remarkable.
The collapse of the twin towers is expected to result in the
largest insured loss ever recorded by US insurance companies.
Estimates range between $40 billion and $50 billion. That's far
higher than the $16 billion in claims for Hurricane Andrew in 1992,
the largest loss up to 2001.
While final losses have not yet been tallied, initial losses from
Sept. 11 were so staggering that some 19 insurance companies were
immediately placed on credit watch by corporate credit reporting
agencies such as Standard & Poor's. Congress and the White House
also began weighing a plan, which later stalled in the Senate, to
create a financial "safety net" for the industry in case of future
terrorist attacks and additional claims.
While many of the insurance companies are now off credit
monitoring, the fallout - for consumers as well as investors -
continues. While Washington provided a bailout package for the
airline industry last year, the impetus for a similar safety net for
the insurance industry is "falling apart," says Robert Hunter, who
oversees insurance for the Washington-based Consumer Federation of
Instead, he says, Congress is likely to pass several smaller,
more specific bills to protect the insurance industry against
diverse types of losses linked to terrorism.
Still, for many companies, the terrorist attacks merely
accelerated insurance-rate hikes that had begun well before the fall
of 2001. The reason: An economic downturn put an end to the massive
profits insurance companies made from investing premiums in the
booming stock market of the late 1990s. Even with rising premiums,
the increased revenues have yet to translate into across-the-board
gains in corporate earnings. Rather, much of the money has been
converted into payouts to claimants following Sept. 11.
Investing in insurance subsectors
Investors looking to buy insurance stocks should do so
selectively, based on the economic fundamentals of each company,
says Cathy Seifert, who tracks the industry for Standard & Poor's
Corp. in New York.
Like many insurance industry analysts these days, Ms. Seifert
looks for firms with strong balance sheets as well as those that
have a foothold in other markets such as retirement-savings accounts
or a wide range of financial services. …