NAMIC REpresentative Warns of ‘Stultifying’ Economic Consequences of Reinsurance Shortage

January 21, 2002

Warren Heck, chairman and CEO of the Greater New York Mutual Insurance Company will explain to the NAIC’s Reinsurance Task Force the more general economic problems that accompany the post-9/11 reinsurance market.

Heck represents the National Association of Mutual Insurance Companies (NAMIC) in a panel of primary company experts assessing problems brought by terrorist attacks and the public’s and property/casualty industry’s worries about recurrence. The primary company panel is one of four testifying to the NAIC Reinsurance Task Force on virtually all aspects of post-9/11 reinsurance markets.

Since the National Association of Insurance Commissioners (NAIC) is an association of state regulators, the Washington, D. C. location for the hearing has significance — its proximity to federal power. The property-casualty industry’s clear desire to have a federal backstop for terrorist-caused claims has received legislative attention but still seems far from resolution.

Heck will testify that “Failure to enact some sort of federal backstop will ultimately have a stultifying effect on our economy and any possible economic recovery.”

Heck’s companies have a niche in the New York area residential real estate insurance market, including many residential high-rise buildings. They also insure commercial properties in the New York City area. Included in Heck’s analysis of the reinsurance-market changes wrought by the September terrorist attacks are the following statements:

— “The diminished availability of reinsurance translates to reduced capacity available to primary risks. This is particularly true in densely populated urban areas.”
— “Exclusions for terrorist acts became standard in virtually every property and casualty reinsurance treaty.”
— “…the significant increase in reinsurance rates in an increasingly hard market has forced primary insurers to substantially raise their rates.”
— “Many mortgage agreements are in breach of contract since policies are now limited by terrorist exclusions.”

Heck has been in property-casualty insurance for 43 years. The full text of Heck’s testimony to the NAIC’s Reinsurance Task Force is available at NAMIC’s Web site, NAMIC Online at http://www.namic.org/default.asp?ArticleID=3228.

During the hearing, state insurance regulators will hear from policyholders, primary insurers and reinsurers regarding the availability and/or affordability of reinsurance coverage due to the lack of a federal backstop for terrorism losses, according to the NAIC. Based on information gathered during the hearing, state regulators may then discuss potential changes in the regulation of the reinsurance industry in the United States. Some parts of the meeting may be held in executive session in order to assess specific company information.

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