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Life insurance actuaries interviewed by National Underwriter say mortality calculations will not be impacted by the World Trade Center disaster on Sept. 11.
While all say that a single event would not change mortality or morbidity as reflected in actuarial tables, they agree that a series of terrorist events could necessitate a reevaluation of mortality and morbidity experience.
Government officials have left open the possibility that America could face more terrorism, although actuaries interviewed say that is still a speculative assumption.
What these actuaries feel more certain about is that it will change the way business in general, and life insurance in particular, is conducted.
For instance, one actuary says that if a campaign of terrorism is conducted in cities, then it is possible that there could be different insurance rates for those living in cities than for those living outside urban areas.
Larry Gorski, chief actuary with the Illinois Insurance Department, says there should be no impact on mortality for reserving purposes as a result of the Sept. 11 attacks. This is an "extraordinary event," he adds.
Regulators will continue to look at an insurer's capitalization, its risk diversification and the diversification in the number of reinsurance programs a company has in place, Gorski continues.
Regulators will also continue to look at "the quality and diversification of insurers' bonds, equities and mortgage portfolios," he says. If you are a diligent regulator, then you just keep monitoring these areas and if you are not, then this event may be an impetus to increase such monitoring, Gorski says.
"As tragic as the recent events are, there are not a significant enough amount of deaths to change mortality," says James Van Elsen of Van Elsen Consulting in Colfax, Iowa.
"There are significant reserves to meet adverse mortality," he says. "It would take a lot more similar events with the magnitude of that event."
What insurers need to do is to use catastrophe coverage and other reinsurance options, he continues. If the risk is spread far enough, no one gets hurt, Van Elsen adds. "This is an extraordinary event. One doesn't try to reprice, but to reinsure."
In the near-term, direct writers may be paying more for that reinsurance, says Donna Claire of Claire Thinking in Fort Salonga, Long Island. But in the long-term there needs to be more of a focus on risk management, she adds.
For example, she asks, are all of an insurer's risks in certain properties, and if reinsurers are used, are reinsurance programs concentrated with one company or spread out?
Claire believes there are sufficient margins added to basic actuarial tables–the tables used as a foundation in the creation of mortality tables–to sufficiently cover isolated events. She says the mortality tables adequately covered events such as the AIDS crisis.
If there are more terrorist events, Claire says the industry might take an approach such as looking at risk-based capital factors to ensure solvency.
Claire says it will be interesting to see whether reinsurance contracts, such as contracts of some offshore reinsurers, are honored or if the 'act of war' provision is used.
