The events on 11 September hit at the heart of the re/insurance industry, both in terms of people lost and as the largest catastrophe ever.

Few people could believe their eyes on 11 September. In the modern world of advanced technology, the downing of four aircraft, laden with fuel and passengers, was beamed into homes and offices around the globe. The world watched the world changing.

For the re/insurance industry, it was a double blow. The first was the people – not just those killed in the World Trade Center, buildings which housed a vast number of insurers and brokers, but also the individuals travelling on the hijacked planes. The second was the fast realisation that this would turn out to be the largest insured loss of all time.

The re/insurance industry responded quickly, bringing out estimates of their exposures within days of the events. There was little doubt the figures released early on would be inaccurate, and suggestions that the overall exposure for the industry would be in the region of $10bn-$20bn now seem naïve. But the industry felt it needed to tell the wider world the event would be manageable, and even with estimates reaching as high as $70bn, the re/insurance sector appears confident it can weather the storm.

That the sector will survive is not in doubt. The security of individual players, however, is a different matter. Rating agencies responded to the catastrophe by systematically placing a number of market participants on creditwatch, and several have now been downgraded, though it should be noted that others have maintained their ratings.

Many re/insurers have publicly issued loss estimates, updating them when appropriate. The next four pages list estimates up to the end of the first week of October. These are not fully comprehensive, nor are they a true reflection of the current state of the losses; some figures are pre-tax, other post-tax, for example, and there may be double counting from businesses within larger groups separately issuing loss estimates.

This latter problem invariably includes Lloyd's-related businesses, some of which have been stripped out of parent company issued figures while others are consolidated into the overall total. Lloyd's separately issued a total market exposure estimate of $1.9bn, representing about 12% of the market's 2001 capacity (although some losses inevitably will be covered under policies issued in 2000, and therefore will hit the 2000 year of account totals). Following Lloyd's announcement, rating agency Fitch commented “history has shown initial estimates of the insured loss for large catastrophes have always been understated... Due to the complex nature of assessing the ultimate loss from the attacks in the US, particularly identifying business interruption and liability losses, Fitch believes it will be some time before an accurate figure of the total insured loss, and Lloyd's proportion of that loss will emerge.” The rating agency said it expects Lloyd's loss to be at least $2.5bn, particularly because of its position as a “significant reinsurer”. This would bring Lloyd's exposures more into line with those of Berkshire Hathaway, which has estimated claims of $2.2bn, which it says represents between 3-5% of the total losses overall. In a letter to Berkshire Hathaway managers, Warren Buffett pointed out that some parts of the claims – the liability elements – may take “a considerable time to settle.”

Even now it is far too early to predict how the claims are going to pan out. Arig Re is not alone in trying to establish whether the catastrophe on 11 September constitutes one or more events, and liability is the largest question mark hanging over the losses. As Tillinghast-Towers Perrin commented, “The liability losses following the attack could be staggering. The biggest question is if and where to assign liability.” The consultancy foresaw a capacity crunch in the reinsurance sector. “After a mega-catastrophe, primary insurers re-evaluate their reinsurance needs and often seek greater protection. Ironically, at the same time, reinsurers implement tighter risk controls, which tend to reduce the capacity they are willing to offer.”

But not all reinsurers are following this tried and tested model. Already, AIG has put together an aviation war risk and hijacking liability facility to plug a coverage chasm which appeared following 11 September. Within days of the attack, Bermudian property cat writer Renaissance Re upped the capital in its commercial property insurer Glencoe Insurance Ltd to $100m, allowing it to offer property lines of $10m per risk, and early in October it announced the formation of a new property cat reinsurer, DaVinci Re. Initially capitalised with $500m, DaVinci Re investors include State Farm Mutual and Automobile Insurance Co, as well as Renaissance Re itself. DaVinci Re will operate the same way as OPCat.

In spite of such ventures, there is absolutely no doubt the repercussions on the global re/insurance industry from the events of 11 September will be huge. With Fitch estimating there could be more than $6bn in unreported losses between the insurance and reinsurance markets, partly due to the use of finite risk contracts, the estimates of losses emanating from that day are set to rise. And the whole basis of the industry is set to shift. It will take time before the real implications begin to emerge.