Reinsurers, Consumers Fight Flood Program Windstorm Bill

BY MATT BRADY
NU Online News Service, March 27, 2:30 p.m. EDT

WASHINGTON—In a case of politics making strange bedfellows, J. Robert Hunter of the Consumer Federation of America and the Reinsurance Association of America have joined to oppose legislation expanding the National Flood Insurance Program.

Mr. Hunter, CFA’s insurance director, is a frequent critic of the industry. In this case his organization and the RAA are part of a consortium that urged the Senate Banking Committee today to oppose the Flood Insurance Reform and Modernization Act of 2007 (HR 3121).

The bill, already approved in the House, combined a bill introduced by Rep. Gene Taylor, D-Miss., adding windstorm coverage to the program, with previously introduced flood reforms designed to increase the number of consumers in the program and reduce subsidies for some properties.

Mr. Hunter acknowledged that it is a case of “man bites dog” to see himself and the industry working together.

“I don’t usually align myself with them unless it’s something I feel is important,” he said. “The insurance industry is strong enough. They don’t need me.”

The consortium also includes among its members taxpayer advocacy groups such as the Council for Citizens Against Government Waste and Taxpayers for Common Sense along with environmental organizations like the National Wildlife Federation and Friends of the Earth.

Franklin Nutter, president of the RAA, said the diversity of the consortium’s membership demonstrates that the NFIP bill “is much more than an insurance issue.”

The basis for his opposition to plans to expand the NFIP, Mr. Hunter said, is that while it may sound like something that could help consumers, he believed it would instead likely only aid developers looking to build along the coast.

“I don’t think it’s wise to subsidize” coverage in high risk areas,” he said, adding that proposals such as windstorm coverage expansion “encourages unwise construction” in high wind risk, high flood risk areas.

Mr. Hunter said he was not opposed to the idea of a flood insurance subsidy, but he said it should be something targeted to help consumers and be focused on scaling down the number of people living in flood-prone areas. Such a system, he said, could be based on the policyholder’s income, and should only be applied to existing structures.

The consortium is also opposed to other federal proposals that would establish new federal programs to provide loans to state disaster funds or provide federal government backing for a state’s property and casualty insurance guarantee fund.

The legislation to establish the program, the “Homeowners Defense Act” (HR 3355), was introduced in the House last year by Reps. Ron Klein, D-Fla., and Tim Mahoney, D-Fla. Like the flood program bill, it was passed by the House and is currently awaiting action by the Senate Banking, Housing and Urban Affairs Committee.

2008 P-C Profits Will Drop, Says Fitch

NU Online News Service
March 26, 4:16 p.m. EDT

The U.S. property-casualty insurance and reinsurance industry’s profits will drop off this year, and most firms’ net return on average equity will not exceed 12 percent, Fitch Ratings said today.

While the industry reported strong results in 2007, they nevertheless fell short of the record net profits and underwriting performance of 2006, Fitch reported.

Fitch said that for the second consecutive year underwriting results benefited from benign natural catastrophe activity and positive loss reserve development that combined to partially offset the adverse impact of a deteriorating insurance pricing environment.

While competitive factors are likely to promote further deterioration in rates, Fitch said it expects insurers to post a more modest underwriting profit in 2008.

The rating service said it anticipates that insurers' overall profits will decline in 2008, and that the industry will struggle to produce an adequate return on capital, which Fitch estimates for most insurers and reinsurers as a net return on average equity of between 11- and 12 percent.

Fitch compiled GAAP earnings release and 10-K filing data from publicly traded p-c insurers in its debt rating universe, as well as several other insurance organizations of interest, to evaluate full-year 2007 performance.

Net income for the group of 50 p-c organizations Fitch examined declined by 10 percent in 2007. The net income return on equity for Fitch’s universe dropped to 13 percent in 2007 from 16 percent in 2006, which still represents an acceptable rate of return on capital, Fitch said.

Reserve development for the insurers and reinsurers in Fitch's publicly held insurer universe remained favorable in 2007. Fitch estimates that reserve releases trimmed 2.1 combined ratio points off of 2007 underwriting results.

The calendar-year aggregate combined ratio of Fitch's universe was 89.3, which implies an accident-year combined ratio in the low 90s. These results compare to calendar- and accident-year results of 84.7 and 85.5, respectively, in 2006.

The detailed report is available at www.fitchratings.com.

2008 P-C Profits Will Drop, Says Fitch

NU Online News Service
March 26, 4:16 p.m. EDT

The U.S. property-casualty insurance and reinsurance industry’s profits will drop off this year, and most firms’ net return on average equity will not exceed 12 percent, Fitch Ratings said today.

While the industry reported strong results in 2007, they nevertheless fell short of the record net profits and underwriting performance of 2006, Fitch reported.

Fitch said that for the second consecutive year underwriting results benefited from benign natural catastrophe activity and positive loss reserve development that combined to partially offset the adverse impact of a deteriorating insurance pricing environment.

While competitive factors are likely to promote further deterioration in rates, Fitch said it expects insurers to post a more modest underwriting profit in 2008.

The rating service said it anticipates that insurers' overall profits will decline in 2008, and that the industry will struggle to produce an adequate return on capital, which Fitch estimates for most insurers and reinsurers as a net return on average equity of between 11- and 12 percent.

Fitch compiled GAAP earnings release and 10-K filing data from publicly traded p-c insurers in its debt rating universe, as well as several other insurance organizations of interest, to evaluate full-year 2007 performance.

Net income for the group of 50 p-c organizations Fitch examined declined by 10 percent in 2007. The net income return on equity for Fitch’s universe dropped to 13 percent in 2007 from 16 percent in 2006, which still represents an acceptable rate of return on capital, Fitch said.

Reserve development for the insurers and reinsurers in Fitch's publicly held insurer universe remained favorable in 2007. Fitch estimates that reserve releases trimmed 2.1 combined ratio points off of 2007 underwriting results.

The calendar-year aggregate combined ratio of Fitch's universe was 89.3, which implies an accident-year combined ratio in the low 90s. These results compare to calendar- and accident-year results of 84.7 and 85.5, respectively, in 2006.

The detailed report is available at www.fitchratings.com.

Smaller Brokers Can Add Up To Better Service

BY MARK E. RUQUET
NU Online News Service, March 25, 3:10 p.m. EDT

Size does not necessarily equate to better service, as some smaller brokerage firms perform better than larger competitors, according to a survey of risk managers.

Consulting firm Greenwich Associates said that when it comes to the quality of client service, its poll of 714 risk managers gave the edge to five national brokerage firms, over the top three global brokers.

All of the brokers that were looked at in the study had sales of more than $500 million.

The Greenwich, Conn.-based company said its survey asked risk managers at large corporations to rate the quality of the brokers in a range of product and service categories. The firm said the most important drivers of client loyalty were overall service quality, price/value and a broker’s ability to understand the client.

From interviews conducted with these risk managers the global operations of Marsh, Aon and Willis were rated as giving average client service quality. In that group were also listed Lockton, Hilb, Rogal & Hobbs and Wells Fargo.

Five brokers that received above-average client service quality marks were Arthur J. Gallagher, BB&T, Beecher Carlson, Integro and Wortham Group.

Five national brokers were listed as below average, but they were not identified.

Greenwich said the rating is a composite of 19 “distinct broker performance factors.”

The importance of service, said Bill Bruno, Greenwich Associates consultant, is that it develops strong relationships and less pressure on risk managers to feel the need to switch brokers.

“As company management and boards become more sensitive to, and responsible for risk management issues and service quality benchmarks, they are more inclined to switch brokers and carriers if they do not feel they are getting adequate value,” he said in a statement.

“Relationships are up for grabs in a way the market has never before seen. This can be viewed as an opportunity or a risk depending on your strategy,” said David Fox, Greenwich Associates consultant.

U.S. Predicts Heavy Flood Season Ahead

BY MARK E. RUQUET
NU Online News Service

A swath of heavy storms causing flooding from Texas through the Ohio Valley and into the Northeast is a preview of what is to come for this spring season, government officials said today.

During a press conference today, officials with the National Oceanic & Atmospheric Administration discussed the spring outlook for flooding and drought.

Vickie Nadolski, deputy director for the National Weather Service, said the current severe flooding “could be a preview of what we may see as we enter the spring thaw.”

She said more than 250 communities in a dozen states are currently experiencing flood conditions and the National Weather Service has issued flash flood and river flood warnings from the Southern Plains to the Upper Midwest.

From media reports, it is estimated that 13 people have lost their lives in the floods and more are missing, she noted.

The spring outlook calls for above average flood conditions through large parts of the country because of record precipitation and melting snow causing rivers and streams to crest over their banks.

Much of the Mississippi, Ohio River and lower Missouri River basin, the states of Pennsylvania, New Jersey, much of New York, the New England states, Colorado and Idaho are expected to experience flooding this spring.

Increased snow fall this winter should help with stream flows in the West, which should help delay the onset of the fire season, said Douglas LeComte, meteorologist with the Climate Prediction Center.

Despite the wet weather throughout portions of the United States, Mr. LeComte said it will not end the drought in parts of Georgia, Florida and Western states.

Joanna Dionne, meteorologist, National Weather Service, hydrologic services, noted that if there is a significant weather event over the course of the spring, it could produce major flooding because the ground is saturated from current and past rains.

Despite the rainfall, Mr. LeComte said in parts of the country, notably West Texas and New Mexico, the drought is expanding with no end in sight.

Connecticut Comp Bills Draw AIA Fire

BY DANIEL HAYS
NU Online News Service, March 18, 4:25 p.m. EDT

An insurance trade group’s opposition to bills in the Connecticut legislature that would modify certain workers’ compensation benefits is based on flawed estimates, a legislator suggested today.

State Rep. Kevin Ryan, D-Montville, who chairs the Labor and Public Employees Committee, made his comments concerning two measures that the American Insurance Association said would “add costs to the private-sector employment and state and municipal budgets, further burdening an already strained economy.”

The bills were voted out of committee on March 8 and sent to floor of the Senate, but Mr. Ryan said before they could move ahead they would have to get a study by the Office of Fiscal Analysis—which, he added, “may reflect a more realistic cost” than that projected by the National Council on Compensation Insurance.

Among the measures that have drawn AIA fire is Senate Bill 64, concerning awards for scarring.
Under current law, scarring awards are limited to permanent significant scars on the face, head or neck, or any other area of the body that handicaps the employee in obtaining or retaining employment. Senate Bill 64 would delete the limitations on scarring awards and make all permanent scars compensable.

Rep. Ryan said the NCCI estimated the cost for such awards would rise from $3 million to $20 million—which, he added, would be “pretty minimal for folks who have damage for their entire body.” Such injuries he said, “while they may not be visible, can still cause pain.”

Senate Bill 255 would increase potential permanent partial disability benefit payments. AIA said Connecticut PPD awards already are high and well above the national average.

According to AIA, in addition to a huge benefit increase, the legislation would create disincentives for injured workers to return to the job in a timely and appropriate manner, as well as increase the number of disputes within the system and costs associated with those additional disputes, such as attorney fees and medical/legal expert costs.

Mr. Ryan said this would only happen if everyone eligible to get an extension took it, adding that it only applied to the most extreme cases.

“Enactment of these bills would be counterproductive to the interests of the state,” said Laura Kersey, AIA’s Northeast assistant vice president, in a statement. “They would undermine the very successful workers’ compensation reforms the state of Connecticut enacted in 1993.”

Prior to the 1993 reforms, she said, Connecticut had one of the most expensive and inefficient workers’ comp systems in the nation. Average benefit costs per covered worker in 1991, for example, were more than 35 percent higher than the nationwide average, she noted.

Between 1982 and 1991, according to Ms Kersey, average benefit costs in Connecticut increased 250 percent--more rapidly than in any other state during that time, and 84 percent more rapidly than average costs nationwide.

“Connecticut’s workers’ compensation cost situation has improved significantly from the pre-reform era, but the state’s costs remain higher than average costs around the country,” she said.

Ms. Kersey also criticized Senate Bill 5626, which she said would destabilize Connecticut's workers' comp system by negating the exclusive remedy protection that settles worker injuries without lawsuits.

According to her analysis, the bill would allow the injured worker to bring a civil action against the workers' comp insurer for alleged breach of good faith and fair dealing in the administration of claims.

“There is no justification for departing from the exclusive remedy where the claimant's attorney drafts a complaint to allege inappropriate claims handling,” said Ms. Kersey.

Senate Bill 5626, she added, is “an unjustified attack on the commissioner of insurance's jurisdiction to review, investigate and sanction, where appropriate, instances of insurer misconduct.”

She concluded that the state’s General Assembly “should seek alternatives to further improve upon the savings already achieved by the reforms, and continue to seek ways to place Connecticut’s costs more in line with workers’ compensation costs in other states.”