German terror insurer mulls global coverage to boost business

[MUNICH] German terrorism insurer Extremus Versicherungs-AG, set up to cover terrorism-related claims following the Sept 11 attacks in New York, is considering offering global coverage as its premium income shrinks.

The insurer, whose shareholders include Allianz SE and Munich Re, may start offering policies outside Germany within three months because of the demand from clients, chief executive officer Gerhard Heidbrink said in an interview. Extremus, which is backed by the government, currently refers companies seeking international coverage to firms such as Lloyd's of London Ltd. Others offering terrorism coverage include American International Group Inc and National Fire & Marine Insurance Co.

"We are currently holding talks with our main shareholders about a separate offering of international terror-insurance," Mr Heidbrink said. Attacks "in Paris and Brussels have been a reminder of the terrorism threat. Yet, just about a third of the larger German corporations have bought terror coverage from us, as it's limited to Germany and doesn't reflect their international setup." Extremus last year agreed an extension of a 7.5 billion- euro (S$11.71 billion) state guarantee with the government through 2019. A further 2.5 billion euros is guaranteed by the Cologne- based firm and its shareholders. The coverage is limited to property claims and resulting business interruptions and is capped at 1.5 billion euros per client.

"An attack comparable to the one on the Brussels airport could easily lead to terrorism-related claims of more than 100 million euros in Germany," Mr Heidbrink said. "While Paris-style attacks with guns and bombs are more likely, we know that there are people out there that are able to plan for bigger acts."

Allianz, Europe's largest insurer, and Munich Re are Extremus's biggest shareholders, with a 16 per cent stake each. Swiss Re owns 15 per cent while the industrial insurance unit of Talanx AG, Germany's third-biggest insurer, holds 13 percent, according to Extremus's website. Other investors include American International Group Inc's European unit and the German unit of Zurich Insurance Group AG.

German insurers set up Extremus in 2002 to provide coverage for terrorism-related claims that individual insurers stopped offering or made very expensive following 9/11. The attacks on New York, Washington and Pennsylvania in 2001 cost insurers US$39.4 billion, according to the Insurance Information Institute.

Gross written premiums at Extremus fell to 44.5 million euros last year from 52.1 million euros in 2010. Rates for terror coverage in Germany have declined from as much as twice the price of commercial property coverage in 2002 to 5 per cent to 30 per cent of the cost of insuring business property today, Mr Heidbrink said.

"Right now, terror coverage is as cheap as it can get, and companies that still think they can do without it are putting their future at risk," he said.

BLOOMBERG