Madrid Attacks Touch American Economy

In addition to the appalling loss of life and the political fallout from the Madrid train attacks, the bombings of March 11 have also sent ripples across the insurance and financial industries. According to a recent article by Mark Mahorney that appeared on the popular and widely read investor site, The Motley Fool, the attacks have undermined North American insurers and put a chill on investors.

The writer explains that terrorist attacks tend to represent a double blow for the insurance sector. First, says Mahorney, terrorism can leave North American insurers on the hook for billions, even after government bailouts promised under the US federal Terrorism Risk Insurance Act, passed in 2002. Secondly, these large payouts leave traders wary of investing in affected firms and even the larger insurance industry as a whole.

“Property and casualty insurer American International Group (AIG) dropped about five percent… this week after a Morgan Stanley analyst said that the company would be liable for $1.9 billion,” wrote Mahorney. “That spooked investors on concerns about the company's exposure to claims from damages caused by terrorism.”

According to the author, as long as terrorists remain at large and able to strike unexpectedly, it’s likely the insurance industry will continue to suffer.
The article, entitled The Cost of Terrorism is available here: http://www.fool.com/Server/FoolPrint.asp?File=/news/mft/2004/mft04032422.htm