Standard & Poor's on Y2K legal issues : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Standard & Poor's says Y2K is still a potential legal issue for the insurance industry.


Monday February 7, 3:36 pm Eastern Time

Y2K bug less threatening than first expected -S&P


NEW YORK, Feb 7 - Despite some isolated incidents, Y2K has led to no widespread damage for the insurance industry; however, it is too early for insurers to declare total victory over the Y2K bug.

The worldwide cost of Y2K remediation has been estimated at about $200 billion -- about half relates to the U.S. If insureds are successful in recovering even a portion of these costs, Y2K losses may develop into a meaningful issue for the industry, Standard & Poor's said in a statement today.

``Whatever the final outcome, defense costs have the potential to be material. Y2K could continue to be a rating factor to the extent that it is an earnings drag for the next one to three years,'' Standard & Poor's said.

Y2K is not, however, expected to be a surplus threatening event. Although Y2K has not succeeded in turning the underwriting cycle, it has the potential to bring the importance of underwriting discipline back to center stage.

Standard & Poor's has not made any insurance ratings changes related to Y2K. Overall, insurance companies have reported a nominal amount of claim and notification activity. Sue and labor claims, in which insureds are seeking to recover costs associated with fixing date-sensitive systems, seem to be the only real area of concern.

However, there has been no resolution of whether such claims apply to Y2K coverage.

``To date, there have been a few incidents that suggest the Y2K bug could have caused a great deal of disruption,'' Standard & Poor's said. The actual damage, however, has been minor and it is too early to tell if all the computer systems have been successfully remediated for Y2K: not all the chips have been tested; the fixes may be temporary where windowing was used; and Feb. 29, 2000, poses another hurdle.

From an insurance liability standpoint, companies are waiting to see the progress on the increasingly popular sue and labor suits. If there is a material stock market correction, an uptick may be seen in the directors' and officers' claims against companies with declining stock prices.

The industry, therefore, expects to have a much better idea of Y2K-related losses at the end of the first quarter.

Most companies survived the first few days of 2000 with minor glitches. Most of the malfunctioning systems were instantly identified and repaired.

Standard & Poor's has not heard of any billing or payment problems. In most cases, companies reported 90%-95% cooperation by all third parties.

Those companies with contingency plans generally found it advisable to activate them in cases in which a third party could not prove compliance status before Dec. 31, 1999.

-- Tidbit (, February 08, 2000

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