Chairman and Chief Executive Officer of the Chubb Corp., Dean O'Hare, testified before the House Financial Services Committee that a series of terrorist attacks or similar catastrophes in the near future could cause serious problems for the insurance industry.

"The industry has [only] a specific amount of capital which cannot insure risks that are infinite and impossible to price," says O'Hare.

The Sept. 11, 2001, terrorist attacks, the worst insured catastrophe in American history, were not costly enough to trigger failures of any U.S. insurance companies, according to a university researcher's study.

The insurance industry also took hit after hit from Hurricanes Charley, Jeanne, Ivan and Frances in the late summer of 2004 as they devastated much of Florida. Insurance adjusters and meteorologists are still crunching numbers with losses potentially exceeding $25 billion U.S. dollars. This hurricane season will most assuredly go down as one of the most active on record. Thus far, no insurers have left the homeowners insurance market as a result of the numerous hurricanes. It might help insurance actuaries sleep better at night to hear that 2004 was a highly active and unusual hurricane year.

Meteorologist William Gray of Colorado State University in Fort Collins is a pioneer in long-range hurricane forecasting. He said the number of hurricanes striking land is what makes the 2004 season unusual.

The landfalls were caused by the unusual positions of high-and low-pressure systems over the Atlantic Ocean. These systems created steering currents that drove the hurricanes farther westward than usual, Gray said.

"We probably won't see another season like this for a hundred years," the meteorologist said. "The southeastern United States has been extremely lucky for the last 40 years or so, particularly Florida. In the period since 1966, the Florida peninsula was hit by only one major hurricane, Andrew, in 1992. This year, they had three. This is a rare statistical event."

"There was this major fear that our insurance industry would be wiped out by these (September 11 terrorist) acts simply because of the enormous payouts," said John Fitzgerald, a finance and insurance professor at Ball State University in Muncie, Indiana. "However, the only business failures were actually normal exits from the industry."

While initial estimates of Sept. 11 losses ranged as high as $70 billion in the weeks after the attacks, actual damage payments have amounted to between $30 billion and $35 billion over the past three years, Mr. Fitzgerald noted.

Financial analysts seem to concur. With total insured loss estimates ranging as high as $45 billion, Standard & Poor's, a financial rating company, said as early as Sept.18, 2001, that losses of more than $50 billion would be sufficient to cause "worry about the insurance system" as a whole.

Although he cautions that S&P has seen only about $20 billion in losses put forward in worst-case scenarios by insurance companies, Steven Dreyer, managing director of insurance rating for S&P, says that the $50 billion mark is a threshold.

"Around that point you start to see secure companies become vulnerable," says Dreyer. "We'd also expect to see a number of insolvencies — and not just tiny companies that no-one cares about."

Dreyer says he isn't convinced that the claims from the World Trade Center will ever get to that point, but if there is another event of that magnitude, S&P would start to question the ability of the insurance industry to respond.

"There's a lot of fear in the air, cautions Annotti, but as people get further from what happened on Sept. 11 — both in terms of time and emotions — the industry will be better able to look forward and come to a more clear and responsible answer about how to address the kinds of losses that can come from natural disasters and terrorism.

"There's about $300 billion in capital for the property/casualty insurance industry, but only about half of that is in commercial lines," says Dreyer.

So while more commercial insurance losses could cripple some companies, if a hurricane were to hit Miami, the losses would fall on a different set of insurers, says Dreyer. That certainly helped weather the storms of 2004.