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Enoch Yiu

The Hong Kong Insurance Authority is carrying out an extensive 'health check' on local operators to ensure they can cope with any losses arising from last week's terrorist attacks in the United States.

The regulator is concerned about the 105 companies that are branches or subsidiaries of overseas insurance firms as they could suffer losses due to their parents' exposure to the US.

The insurance industry worldwide is facing an estimated payout of US$20 billion to US$40 billion to the victims of last Tuesday's attacks, which would make it the most expensive man-made catastrophe in history.

The prospect of a huge compensation payout has prompted fears that some insurance companies may face collapse.

Acting Insurance Commissioner Mok Hin-yiu said the authority had sent letters to all 205 SAR insurance companies requesting them to report within four weeks on financial losses they might face in the aftermath of the US attacks.

They may also be required to state if they have adequate reserves to support the losses.

However, Mr Mok said most of the 100 locally incorporated insurance companies did not have exposure to the US market.

His main concern was for operators that were subsidiaries or branches of overseas insurers.

He has liaised closely with the 22 local branches of US firms.

'Some of the overseas parents of these local insurers have substantial exposure to the US market and may suffer huge losses,' Mr Mok said.

Should some of these insurers incur substantial losses, it might hit their Hong Kong offices.

However, Mr Mok said those companies with exposure to the US attacks were usually the largest players and should be able to cope with the huge losses.

Germany's Munich Re believes it is facing costs of US$900 million, while Switzerland's Swiss Re expects to pay out US$750 million. Allianz of Germany has estimated a US$630 million payout and American International Group forecasts US$500 million.

US credit-rating agency Standard & Poor's (S&P) has estimated that the attack on the New York's World Trade Centre will not cripple the insurance industry if the total payout falls below US$50 billion.

But S&P said in a report that if total costs exceeded US$10 billion or US$15 billion, some individual insurers could be hit hard.

'However, the total would have to exceed US$50 billion before we would begin to worry about the industry,' it said.

S&P said there would be arguments over whether insurance companies needed to pay claims related to terrorists' attacks.

Insurers are facing payments for individual life policies, property damages for the collapsed towers and neighbouring buildings, and payouts for four crashed aircraft and interruption to business, with US stock markets closed for the four days following the attacks.

Graphic: insu19gbz



Authority assesses damage from US fallout