GENEVA – The world's two largest reinsurance companies said Thursday the terror attacks on New York will produce the largest claims they have ever faced, doubling their previous estimates to $3.2 billion.
Munich Re, the largest reinsurer, said this year's damage claims from the U.S. terrorist attacks could cost it $1.95 billion before taxes.
``In absolute terms (that figure) represents by far the largest damages burden in the company's history,'' Munich Re said in a statement from its headquarters in Germany. It insisted that ``our conservative estimate includes all conceivable scenarios.''
In Zurich, Switzerland, Swiss Re said the strikes will cost $1.25 billion after taxes this year - about two thirds of 2000's annual profit.
It said it has yet to decide whether its reserves of 2.5 billion francs (dlrs 1.58 billion) would need to be tapped to cover the impact. Swiss Re is the world's second biggest reinsurer.
Reinsurance companies sell policies to protect insurance companies against big losses.
Both companies' stock dropped after the announcements. In Frankfurt, Munich Re shares were down 6.2 percent. In Zurich, Swiss Re shares fell 6.62 percent.
Fitch Inc., a Stamford, Conn.-based rating agency, said Wednesday overall insurance costs from last week's attacks against the World Trade Center and Pentagon are expected to exceed $30 billion, making it the industry's costliest disaster ever.
The companies said they had to revise their estimates because a number of buildings close to the World Trade Center have been damaged or destroyed when hijacked planes were flown into the two main towers. This will have an impact on business interruption claims, the company said.
The day after the Sept. 11 attacks, Munich Re estimated its exposure at up to $903 million while Swiss Re said it expected to cover $730 million in losses.
``The attacks have revealed a previously unimaginable risk potential,'' Munich Re said Thursday. ``This not only affects the U.S. market but applies worldwide. Primary insurance and reinsurance coverage, as well as terms and conditions, will have to be completely rethought.''
Swiss Re said it was fully cooperating with all stock exchanges and other authorities investigating short selling of Swiss Re shares, both prior to and since the attacks on the United States.
Authorities in Germany, Switzerland, the United States and Japan are looking into reports of unusual trading in Swiss Re, Munich Re and other insurance shares in the days before the attack.
They reportedly are checking into whether associates of alleged attacks mastermind Osama bin Laden profited by ``short-selling'' in the stocks because they knew of the attack in advance and anticipated it would cause share prices to plummet.
In a short sale, someone sells borrowed securities, anticipating that he will be able to buy the shares at a cheaper price when it comes time to complete the sale.