Insurance Day
January 24, 2005

Terrorists more likely to strike Europe than America this year

A SIGNIFICANT terrorist attack is more likely to take place in the UK
than in the US during 2005 but the commercial impact and loss of life
from any incident is likely to be far less than the World Trade
Center attack in 2001.

Strategic intelligence company Exclusive Analysis said it expects to
see Sunni extremist attacks in both the UK and the US this year. It
added that the governments of both countries would respond to a major
terrorist attack by imposing “ever-wider, and in our view less and
less relevant”, security measures.

“We feel content that our forecast is that small things are likely to
happen in the UK rather than big events,” said Exclusive Analysis
managing director Simon Sole at an International Underwriting
Association briefing in London. “The basic threat is not from
al-Qaeda we have new Sunni extremist movements to deal with.”

Mr Sole said the company anticipates some deaths in the UK as a
result of such an attack this year possibly at a similar level to the
Madrid train bombing in 2004. “We do not foresee thousands of deaths,
and we don’t see billions of pounds of damage,” Mr Sole said.

Mr Sole also warned of continuing concerns over the “chaotic”
situation in Iraq. “I know some underwriting is taking place to a
limited extent in Iraq. We tend to have a negative view about that,”
he said. “The key point is that the US’s so-called ‘nation-building
effort’ is very flawed, as the US military does not have the skill
set within it to do that sort of work. We are also quite sure the
elections which are coming up very soon would make matters
significantly worse rather than better.” Mr Sole said US president
George Bush’s policies in the Middle East have shown few signs of
creating any long-term progress, although 2005 is unlikely to see
more overt confrontation. The US is unlikely to bring things to a
head in countries such as Iran, North Korea and Syria until at least
2006, he said.

“Invading Iran is an outrageous proposition,” Mr Sole said,
explaining that the Iranian nuclear programme is dispersed over
around 70 sites, with the important ones very much protected and
often under ground.

He added that more economic and political activity is expected
against Syria than elsewhere, and if sanctions were extended against
Syria this would be a “significant matter” for underwriters.

Risks remain present in the Americas, Mr Sole said. “Political risks
in Brazil have probably receded, while civil unrest risks in Brazil
have probably increased.” Colombia faces risks as fiscal deficit is
expected to widen against an uncertain political backdrop. “It is
somewhere you need a lot of information to underwrite safely,” he
said.

“Political risks in Venezuela have gone up and underwriting is
primarily affected by shifts in the legal environment,” Mr Sole
explained, with a land distribution programme that shows “echoes of
Zimbabwe” likely to prove a significant problem.

Elsewhere, Azerbaijan and Russia are areas facing notable political
risk. Relationships between Azerbaijan and Armenia are “potentially
explosive” and Mr Sole said political risks in Azerbaijan are likely
to be higher this year than last. Russia is expected to engage in
intensive counterterrorism efforts, which will involve incursions
into the Caucasus to eliminate renegade Chechens, antagonising
neighbouring states, particularly Georgia. Exclusive Analysis expects
Chechens to manage at least one significant attack in 2005, although
not on the scale of Beslan.