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Madrid bombings likely covered by terrorism pool.

Just when terrorism as a major risk scenario seemed to be abating, the insurance industry was jolted by a series of explosions that ripped through commuter trains in Spain's capital, killing scores of people.

Early reports from Spanish officials said three Madrid train stations were hit by the explosions, which tore open crowded commuter trains as they approached the stations during the morning rush hour on March 11. Spain's Interior Ministry said at least 198 people were killed and more than 1,400 were injured.

Early speculation by the Spanish government was that the Basque separatist movement ETA likely was responsible, but subsequent information furled an alternate theory that an al Qaeda-linked group might be responsible. Insurers are assessing their exposure to the attacks, though it appears likely much of the loss will be absorbed by a state-mandated terrorism insurance pool. Beat for Swiss Reinsurance Co. in Zurich, Switzerland, said the trains themselves are state-owned in Spain. Aside from life insurance implications, it's likely that a substantial amount of the loss costs for the bombings will be absorbed by the Spanish government.

"There is not much we can say about losses at this point," said Werder. "We are a prominent insurer in Spain, and once we do an assessment of the losses, we would announce any significant losses."

Spanish government reports said the main target of the series of coordinated bomb blasts appeared to be the train station of Atocha, in southern Madrid, where three n the March 11th Madrid bombs exploded at the station at about 7:30 a.m. Soon after, four more bombs exploded on a crowded train entering the station. A few minutes later, bombs targeted trains at small stations in El Pozo del Tio Raimundo and Santa Eugenia, both on the outskirts of Madrid.

Werder said the Madrid bombings would trigger examination of risk-assessment scenarios at large insurers and reinsurers such as Swiss Re, given the level of damage such attacks can inflict. The scenario of commuter trains as terrorist targets is particularly troubling, given threats made against railroads in France just a few weeks ago and the apparent terrorist bombing of a commuter train in southern Russia last September, which killed five and wounded 30.

Such ongoing risk assessment is part of the daily process of insurers and reinsurers anyway, especially since the Sept. 11, 2001, terrorist catastrophe that destroyed the World Trade Center, said Werder.

Anke Rosemek, a spokeswoman with Munich Re Group, said Munich Re doesn't expect major losses from the attacks, since general terrorism is excluded from the group's reinsurance treaties.

Spain has a terrorism insurance pool similar to the United Kingdom's, to which all property and accident insurers doing business in the country must contribute. The pool--known as Consorcio de Compensacion de Seguros, or CCS--is set up to indemnify losses, including bodily injury, death and material damages caused by "extraordinary events." Those events are defined by CCS as:

* Natural catastrophes, including flood, earthquake, volcanic eruption, atypical cyclone, and fall of meteorites and other space objects;

* Army and police interventions in times of peace; and

* Terrorism, riots or popular unrest. Generally, insurers that write policies covering fire, theft, glass breakage, machinery breakdown, electronic equipment, motor damage or combined perils must include an "extraordinary event cover" for pool coverage.

Miguel Angel Vazquez, a spokesman with the Spanish insurance trade group UNESPA, said the CCS is financed by a charge placed on most nonlife insurance premiums sold in Spain. In the wake of the attacks, CCS will evaluate the cost of claims to be covered by a compulsory public transport insurance fund, which covers all commuters in Spain.

"Consorcio has functioned perfectly for the past 30 years, as we suffered terrorist attacks," said Vazquez. "It is true that we are now facing the most cruel and dramatic event of this kind, but Consorcio's financial solvency is without doubt, assuring a correct, complete and fast indemnification to victims and their relatives."

The Spanish attacks aren't an issue for London's terrorism insurance market because of the existence of the CCS. "I would imagine that all of this loss would be picked up by the Consorcio," said Paul Bassett, executive director of Aon Counter-Terrorism and Political Risk at Aon Ltd. in London.

Bassett said the CCS has responded successfully to a series of ETA bombings over the years. But he said some risks involving ongoing construction projects might not be covered by the CCS.

Melanie Batley, a spokeswoman for Lloyd's, said: "We expect the losses to Lloyd's to be limited, but we will continue to monitor the situation."
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Title Annotation:Highlights From BestWeek
Author:Pilla, David
Publication:Best's Review
Geographic Code:4EUSP
Date:Apr 1, 2004
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