NYC Partnership economic impact analysis update, February 2002

NYC 9/11 Public Portal Document

> Lehman Brothers is leaving Lower Manhattan but moving most of its 6,000 employees to Midtown. > Deutsche Bank completed the purchase of 60 Wall Street and is relocating Midtown employees to the building. > The New York Stock Exchange has committed to proceed with construction of its new facilities on Wall Street.

• The Insurance Conundrum. The lag in the payment of insurance claims could be longer than initially expected as policyholders and insurers work to resolve differences in loss estimates and sort out which party bears what risk. As more claims have been filed and better information has become available, the estimates of insurable losses have also increased from $38 billion to as much as $52 billion. The increases are due to increased estimates in liability claims and may mean that the economic impact from the attack is significantly greater than originally estimated. Many of these liability claims will be disputed for years and may never be paid (similar to what has occurred since the 1993 World Trade Center bombing). The attack and subsequent claims have resulted in increases of up to 65 percent in commercial insurance rates for some lines, especially for larger properties. Compounding the challenges created by these increases is the difficulty of obtaining terrorism coverage, assuming that it is available at all. Currently, this coverage can only be purchased at extremely high prices from offshore companies and a few well-capitalized U.S. insurers. If banks require terrorism coverage for new construction and the sale of existing buildings, costs will escalate, and activity in the commercial real estate market could be dampened. • The Void in Terrorism-Insurance Policy. Washington’s decision to postpone any action on apportioning the burden for terrorism coverage could have long-term negative consequences for business and the pace of recovery. Reinsurers have largely stopped providing terrorism coverage, leading primary insurers to exclude terrorism coverage from their new policies. As a result, there is heightened concern about the lack of coverage and any potential losses sustained due to another terrorist attack. • The September 11th Death Toll and Life Insurance. The decline in the estimated death toll has resulted in a $1.5 billion drop in estimated life insurance and workers’ compensation payments. • Federal Government Aid Flows. Congress and the White House have so far committed a total of $11.2 billion for the rescue, cleanup and rebuilding of Lower Manhattan. The Congressional funding includes Federal Emergency Management Act (FEMA) resources as well as $2.7 billion in Community Development Block Grant (CDBG) funding for aid to business. The only area of contention so far is the failure of the federal government to reimburse private utilities for about $1 billion in costs of replacing power and telecommunications lines destroyed in the attack. Above all, the revitalization of New York’s economy will require a wise and New York City Partnership ond Chamber of Commerce 3

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