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XL chief warns of challenges facing industry

Hurricanes, unresolved WTC losses, unreliable catastrophe modelling, PSAs: these are just some of the challenges faced by the global insurance industry for 2005 according to XL chief executive of Insurance Operations Clive Tobin.

Tobin’s warning came on 19 November, at “Touching the Void”, a conference organised by UK brokers JLT in London’s Royal Academy of Arts.

First on Tobin’s list of unresolved challenges were the 9/11 attacks, the full ramifications of which, he said “still haven’t been realised”. As well as “a huge amount of litigation” still to be dealt with, there was also the problem of unrealised collectibles. Said Tobin: “We still have $8.1bn in collectible balances from problem insurers. A lot of insurers won’t get 100 cents for the dollar.

This issue was compounded by the failure of the US Congress to pass a successor to TRIA before 2005, which, he said, could lead to billion-dollar exposures. He added: “If there’s a new terrorism event you will not see new capital coming in to rescue the insurance industry.

On the impact of this year’s hyperactive hurricane season, Tobin was similarly downbeat. He said that according to latest information, catastrophe modelling for the US storms “looks likely to be wrong”. He said this was particularly true for Hurricanes Frances and Jeanne, the second and fourth major hurricanes to hit Florida in 2004, which took almost identical paths, where it remained difficult to assess whether damage was caused by first or second events.

And he quoted research from Dowling & Partners that suggested insured losses in the Cayman Islands alone would be in the region of $1.5-2bn.

But he added: “Despite the size of the losses we haven’t seen the industry take a big blip – and that’s to its credit.

One solution, he said, especially in the light of rating agencies’ increasing insistence on larger catastrophe reserves, might be to set up specialist companies that existed solely to take on exposures to catastrophe losses.

On the issue of the probe by New York attorney general Eliot Spitzer’s into PSA-related abuses, Tobin said the industry needed to do “an enormous amount” to rebuild its reputation. But he played down the wider implications of the recent furore, observing: “[Price rigging was found] in one product line in one company in one region. We shouldn’t exaggerate its impact.

Earlier in the day, Andrew Cornish, chairman of risk managers’ association AIRMIC, also commented on the impact of the probe. He said the whole industry was now under the spotlight and that it was now faced with a battle to restore trust. “We have to face up to the fact that confidence in our industry has been knocked,” he said. “We’re looking to work with the industry to work through this issue. It’s to all of our benefit if we can get some positives out of it.

Looking to the future he pointed to further involvement of the FSA as the “prime regulator” on brokers’ business in the UK.

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