INSURANCE: Nine Cold Men

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When armed U.S. merchant vessels leave U.S. ports for England this week (see p. 22), nobody will bid them a more anxious bon voyage than nine insurance men in lower Manhattan. These nine, who meet almost daily, are the Rate and Underwriting Committee of the American Cargo War Risk Reinsurance Exchange, which has outstanding $600,000,000 in war-risk insurance on U.S. cargoes over all the seven seas.

On war-risk insurance for practically all U.S. foreign trade, the nine men set the rates. At their last meeting last week (see cut) they pondered two grave questions: 1) does the recent course of the Battle of the Atlantic (see chart, p. 26) warrant lower rates on foreign-flag cargoes?; 2) will arming U.S. vessels provoke more attacks on them? To the first question, the answer was yes. This week the committee announced a 25% reduction in rates on transatlantic cargoes (from 10% of the value to 7½%).To the second question the answer was no —for the present. Beforeupping rates the committee would wait and see.

What the committee eventually decides about the rates on armed U.S. vessels will be a good measure of the dollar cost of revising the Neutrality Act. For nowhere in the world are there colder, soberer, less wishful judges of naval warfare. They have no "inside" information about ship movements. But because they follow closely all the news about sailings, submarines and mine fields, and because they have money at stake, they can compute remarkably accurate odds.

The Reinsurance Exchange, a pool formed by 150 U.S. firms which write war-risk insurance, was set up in the summer of 1939 to forestall a repetition of U.S. errors in World War I. At the start of World War I, U.S. firms had to place most of their reinsurance (some 80%) in London—at London's rates and terms. When a British bank holiday stopped London underwriters, shippers had to shop around, at widely varying rates, for enough U.S. companies to cover an entire cargo—until the U.S. Government set up a reinsurance fund of its own. (The Government assumed $2,068,000,000 in risks, made an operating profit of $17,500,000.)

Now all war risksassumed by the 150 companies (combined assets: over $1,000,000,000),are divided among all. Premiums go to the exchange, are then dividedamong the 150 in the same proportion as the risk (ranging from .1% t010%) each agreed to assume when the pool was formed. In effect, theexchange is the U.S.underwriting industry's coming-of-age: a form of self-reinsurance.

Since war began, the exchange has taken more than $8,500,000,000 in risks—which includes practically every cargo the U.S. has shipped or received except in trade with Britain. Rates have ranged up to 20% (on shipping from the Mediterranean immediately after Italy entered the war).But the average on all U.S. foreign trade, to all parts of the world,has been less than 1%. Today war-risk insurance from New York to the west coast of South America costs ⅛%; to Suez it is 5%. Ships flying the U.S. flag are quoted lower than foreign ships. Lowest rates of allgo to the Red Cross, which to dace has saved over $100,000 by its special discount.