Updated from 11:57 a.m. EST
Insurance companies scored a big victory with Congress's passage of a bill limiting their exposure in terrorist attacks, but don't expect it to provide any near-term relief in the shares or profits of property and casualty firms.
While the measure, which President Bush is expected to sign, will put a cap on the total liability commercial insurers face, it doesn't eliminate all of the risk of terrorism to the industry.
The measure, approved by the Senate late Tuesday on an 86-11 vote, comes with a $10 billion deductible for the industry. In other words, the federal government only steps in to pay claims if the industry's total liability for a terror attack exceeds that amount.
To put that deductible in perspective, the insurance industry is expected to pay out $40 billion in claims for the Sept. 11 attacks, according to the Insurance Information Institute. Roughly $5 billion of that includes claims on life insurance policies and for workers compensation.
Indeed, most industry analysts are viewing the measure's passage as a non-event for big commercial insurers such as
American International Group
Travelers Property Casualty
, and don't expect it to lead to any lasting stock gains or credit-rating changes.
"Initially it's not going to have a real significant impact," said Michael Paisan, an insurance analyst with Legg Mason. "It's more or less a nonevent from a stock perspective."
In midday trading Wednesday, shares of many big property and casualty firms were either flat or only slightly higher on the news of the Senate vote.
One reason the new law won't do much to alter the profit picture at commercial insurers is that many of them stopped writing policies that covered terror attacks in the aftermath of Sept. 11. And those firms that do continue covering acts of terrorism imposed such high premiums that many businesses decided it wasn't worth the cost.
While the new law likely will encourage the insurance industry to write more terror insurance policies, the policies are fairly low-margin, due to the reserves needed to back them up.
Ted Collins, a property and causualty analyst with Moody's Investors Service, said the industry will "still bear a significant loss" under the law.
Barring such an attack, analysts expect revenues at many commercial insurers to keep growing well into next year, as insurers keep raising premium rates.
Ever since the Sept. 11 attacks, property and casualty insurers have been boosting premiums for businesses, even if those policies didn't include coverage for future terror attacks. The industry contends the rate hikes are necessary because premiums held steady for much of the latter 1990s.
In many ways, a far bigger issue for property and casualty firms is the potential for the industry to be swamped by a tidal wave of claims stemming from asbestos litigation cases.
Over the past year, there have been a number of jury verdicts that have awarded large judgments to plaintiffs in lawsuits filed against companies that used asbestos products in their manufacturing operations. And there's been a growing concern on Wall Street that some commercial insurers may not have enough money stowed away in reserves to pay off these claims, if the lawsuits are upheld on appeal.
A Fitch Ratings analyst, speaking at an industry conference Wednesday, predicts commercial insurers may have to build up $5 billion in reserves to cover possible asbestos claims, according to Reuters.