SECTION: A SECTION; Pg. A10

LENGTH: 847 words

HEADLINE: Aid Critics Cite Insurers' Wealth; House to Consider Support for Industry if Terrorists Strike

BYLINE: Jackie Spinner, Washington Post Staff Writer

BODY:




The insurance industry's lobbying campaign for federal help covering future terrorism claims was in full swing last month when a group representing Lloyd's of London investors published a newsletter highlighting the "historic opportunity" for insurers to make money after the Sept. 11 attacks.

Industry critics jumped on the Lloyd's newsletter, which noted that premiums are rising, as proof that insurers were going to gouge consumers even as they were asking the government for assistance.

"Our duty is to ensure a stable market and protect consumers from price gouging," said Sen. Bill Nelson (D-Fla.), a former insurance commissioner. "The industry has unleashed its lobbyists all over here, and they are sweet-talking the people key to writing the legislation." The backlash from the newsletter highlights the difficulty insurers have faced in making their case for federal action. The industry has enough money to cover the estimated $ 50 billion to $ 70 billion in losses from Sept. 11. But insurers say they cannot expose their balance sheets to the unknowable risks of future terrorism.

The House is scheduled today to begin considering a system for backing up insurance companies in the event of another attack.

Senate leaders are preparing their own legislation.

But the relative financial health of the insurance industry has been hard for some lawmakers and consumer advocates to ignore.

"They're flush with money," said J. Robert Hunter, director of insurance for the Consumer Federation of America. "The issue isn't whether or not they have the money to cover the risk. It's whether they will cover it."

This is not an industry that was in a financial crisis before Sept. 11. Although the insurance underwriting business has not been profitable for a decade, the industry reaped the rewards of a booming investment market. The industry allowed losses on the insurance side of its operations, keeping premiums low to compete.

Last year the property and casualty industry earned $ 27 billion, according to Weiss Ratings Inc. That was in spite of a $ 27.2 billion loss on the policies the insurance companies wrote. The industry made up for the losses through investments, earning $ 46.6 billion.

"The business of writing property and casualty insurance has been very bad," said Martin Weiss, chairman of Weiss Ratings. "There's been an over-reliance on investment income to keep the industry going."

Sept. 11 created another problem. Reinsurance companies -- which provide insurance for insurers -- have indicated that they will not cover terrorism after Dec. 31, when about 70 percent of reinsurance contracts expire.

As a result, primary insurance companies have started filing petitions with state regulators seeking to exclude terrorism from commercial and personal policies.

"The marketplace is topsy-turvy," said Milton Lagasse, a partner with Treadwell & Harry Insurance Agency in Memphis. "Everybody is waiting to see what the feds will come up with."

The House bill would provide billions of dollars in loans to help pay terrorism claims resulting from a future attack. The insurance industry would be required to pick up the first $ 1 billion in losses, and the government would pay 90 percent of any additional claims. The industry and its policyholders would have to repay the money.

"The unavailability of terrorism coverage for commercial businesses could have devastating consequences for our economy and for consumers, at a time when our economy is already deteriorating," said Rep. John J. LaFalce (D-N.Y.).

Analysts said the industry cannot afford to keep dipping into its surplus -- about $ 300 billion -- to cover additional attacks.

For one, the surplus is meant to pay for other disasters or losses that insurers also cover.

"These losses are affordable in relationship to capital, but these companies are not in the habit of losing 10 to 20 percent of their capital in one day or on a risk that they didn't understand and that is difficult to price going forward," said Stephen Lowe, a principal with Tillinghast-Towers Perrin, a financial services consulting firm.

Although most U.S. commercial and personal policies included terrorism coverage before Sept. 11, the companies did not charge separately for it.

Some insurance companies now acknowledge that they should have. In a statement to shareholders discussing financial results, Berkshire Hathaway Inc. Chairman Warren E. Buffett said insurers were "foolish in not doing so."

Berkshire Hathaway's insurance groups reported $ 2.3 billion in pretax losses from the attacks.

Todd R. Bault, senior research analyst at Sanford C. Bernstein & Co., said insurance companies would not be acting in the best interest of their shareholders if they did not attempt to charge for terrorism coverage.

"It's not price gouging," he said. "No one wants to pay the right cost for the coverage and by right cost that means over time the insurance company is able to fund losses and provide a reasonable rate of return."



LOAD-DATE: November 29, 2001