As long as the insurance claims from New York’s World Trade Centre tragedy don’t exceed $US50 million, the global insurance industry will be okay. If it goes over that figure – and QBE’s Frank O’Halloran is one who believes it will come close – ratings agency Standard & Poor’s says it will start to worry.

While it’s far too early to place any kind of real estimate on the total figure, the impact of the disaster on insurance company bottom lines and share prices is obvious. QBE is far from alone.

Investors have turned against insurance and reinsurance stocks, and the safer bond market is doing better than it has for many years. But US Vice-President Dick Chaney conceded late yesterday that the US is “quite possibly” in recession.

S&P’s insurance ratings MD Steve Dreyer said in New York that only $US4 billion in losses have been acknowledged by insurers so far, but the figure will go much higher. He said he expects “a significant impact on the balance sheets of individual insurers”. 

While QBE has not identified its exposure, analysts pointed out the company had been aiming for a profit of about $260 million. Some comparative losses estimated by other insurers (all in $US):

ACE $400 million; AIG $500 million; Allianz $640 million; Axa $400 million; CGNU $50 million; Chubb $200 million; Munich Re $900 million; Scor Re $200 million; Swiss Re $1 billion; and Zurich Re $400 million.

The highest payout in history is $US20 billion for Hurricane Andrew in 1992. Mr O’Halloran told a media conference in Sydney yesterday that he believes it will be twice as much as that.

Deloitte’s actuary partner Liz Gibson was quoted in London as saying the insurance losses may exceed $US50 billion, but the total cost as a result of health problems from dust inhalation, trauma etc will push the total cost as high as $US100 billion. The US Government will have to pay that component, she said.

S&P’s estimates the total life insurance losses will be in the “low single-digit billions of dollars, which is not likely to cripple the industry”.

Mr Dreyer is confident the global insurance industry will survive, albeit not without some pain. “The industry is strongly capitalised and can withstand an enormous financial hit without threat to the stability of the overall system,” he said.

But as Mr O’Halloran noted yesterday, premiums will inevitably keep rising as a result of the disaster as reinsurers claw back their losses. That’s bad news for industries facing a global slowdown. Rises of 10-15% were expected in reinsurance rates over the next couple of years. Expect them to climb 20% and higher.