First-Quarter P-C Insurers’ Cat Loss $3.35 Billion

Nine catastrophes during the first quarter will cost insurers an estimated $3.35 billion in property-casualty claims from homeowners and businesses, Property Claim Services announced today.

According to the report from PCS, a unit of Insurance Services Office in Jersey City, N.J., the nine events include one that was solely a workers’ compensation loss—the Feb. 8 Imperial Sugar plant explosion at Port Wentworth, Ga.

PCS said no estimate of the explosion-related insured workers’ comp loss has yet been determined. PCS qualifies an event as a catastrophe when there is an insured loss of $25 million affecting a significant number of policyholders and insurance companies.

The remaining eight catastrophes, PCS said, generated 615,000 claims in 22 states. Seven of these were caused by severe weather—damaging wind, large hail, flooding and tornadoes—and one was caused by a winter storm.

The remaining eight events, said PCS, represent the greatest frequency in the first quarter since 1999—tied with the eight events declared in 2005. The insured property loss, it said, is the largest in the last decade.

Of the 22 states, the five with the largest insured property losses were Georgia ($610 million), Tennessee ($535 million), California ($360 million), Texas ($270 million) and Arkansas ($223 million).

The costliest event of the quarter, put by PCS at $955 million, was caused by an outbreak of severe weather that spread from Texas to Ohio in early February. That catastrophe caused about 120,000 losses in the eight affected states.

The first catastrophe of the year, a winter storm in January, affected 13 states and caused an estimated $745 million of insured property damage. It also inflicted damage to 177,000 personal and commercial properties and vehicles.

Claims in personal lines produced 56 percent of the total $3.35 billion loss for the quarter, or nearly $1.9 billion. The commercial property loss was 31 percent of the total, or just over $1 billion. The loss involving insured vehicles totaled almost $500 million, or 13 percent of the total loss.

According to PCS historical data, in the previous nine years the largest first-quarter dollar loss was $2.14 billion in 2005 when there were eight catastrophes.

Smaller U.S. Businesses Abroad Face Bigger Risk

Small to midsize companies are more likely to experience losses from doing business outside the United States or Canada than larger companies, according to an insurance company survey.

The findings were contained in Warren, N.J.-based Chubb's online 2008 Multinational Risk Survey of chief executive, operating and financial officers and risk managers at 212 U.S. companies.

Among the increasing causes of losses that were found were legal actions against management.

Compared to companies with annual revenues of more than $1 billion, smaller companies experienced at least a 50 percent higher frequency of foreign losses during 2007 for liability lawsuits, theft of intellectual property/piracy and theft of goods in transit, the study found.

Chubb said smaller companies also experienced at least a 35 percent higher frequency of losses for crimes against and injuries to American and Canadian employees traveling or working overseas.

“Larger companies often have the resources needed to take the global patchwork of different laws and languages, currencies and styles of conducting business and create corporate risk management standards throughout the world,” said Kathleen Ellis, senior vice president, Chubb & Son, and worldwide manager of the Multinational Risk Group for Chubb Commercial Insurance.

She advised, "Small and midsize companies that do business overseas need to look to their business partners to help them create standards that will help reduce foreign property and liability losses and injuries to employees."

Despite the risks, survey respondents reported that their companies will continue to seek additional revenue outside the United States and Canada in 2008.

Seventy-one percent of the respondents said they expect revenues from foreign operations, foreign sales and/or imports to increase, and three in four companies plan to expand their operations outside the United States and Canada this year.

Companies said they will grow their foreign business by introducing new products (71 percent), increasing employee headcount (62 percent), acquiring another company (47 percent), and increasing the amount of imports (41 percent).

In addition, 68 percent of respondents indicated their organizations will increase employee travel outside the United States and Canada.

Chubb said senior-level executives and risk managers who were polled agreed that the top three threats to their business operations or business conducted outside the United States and Canada are currency risk (23 percent), supply-chain failure (16 percent) and credit risk (13 percent).

In the 2007 Chubb Multinational Risk Survey, the top three threats were terrorism, natural catastrophes and political instability.

This year's survey also found that 39 percent of companies acquired final products and product components from foreign suppliers. Forty-one percent expect to increase the amount of imports in 2008.

Although a vast majority of survey respondents (85 percent) indicated that their companies have not been affected by recent reports of defective products from China and other countries, 41 percent of all respondents are taking action to help avoid a products liability event.

One in four respondents are implementing new policies and procedures to qualify suppliers, the survey found.

Companies, Chubb said, are also testing imported products (13 percent) and requiring foreign suppliers to carry product liability insurance in the United States and/or Canada (10 percent). Fewer companies have halted importing certain products and components or have changed or stopped using foreign suppliers, the survey found.

The research also discovered that professional liability lawsuits are migrating to Europe and Asia.

Nearly one in four companies surveyed said they have experienced a director's and officer's liability, employment practices liability, fiduciary liability, and/or errors and omissions loss outside the United States and Canada.

"Countries in Europe and Asia have undergone significant changes in their laws and regulations over the past decade, and the impact is beginning to be felt around the world," said Jeffrey Grange, senior vice president, Chubb & Son, and worldwide manager of professional liability insurance for Chubb Specialty Insurance.

Mr. Grange said, "Companies of all sizes need to keep a close watch on the evolving foreign legal landscape. They also would be wise to incorporate the resulting professional and other liability exposures into enterprisewide risk management programs."

The 2008 Chubb Multinational Risk Survey was conducted jointly in February and March 2008 by Opinion Research Corp., in Princeton, N.J., and the Chubb Group of Insurance Companies.

Judge Denies Allstate Bid To Halt Calif. Auto Rate Cut

A California court yesterday denied a request by Allstate to stay a regulator’s order that the firm cut its auto insurance rates by 15.9 percent.

Insurance Commissioner Steve Poizner reacted by issuing a statement calling the ruling by Superior Court Judge Peter Busch in San Francisco “a $250 million victory for consumers in California and for Allstate customers.”

Allstate said that while disappointing, the ruling “has no impact on the merits of Allstate’s appeal, and we believe we will ultimately win the appeal.”

Mr. Poizner said the court, by denying a stay, had rejected an effort to delay immediate savings to consumers pending the court action Allstate has brought challenging his department's determination that Allstate's existing passenger automobile rates are 15.9 percent in excess of what the law permits.

"I will continue to fight to ensure that insurance rates in California are not excessive, and when rates are found to be excessive, I will work aggressively to ensure that those rates are lowered," Mr. Poizner said

The 15.9 percent decrease in auto insurance rates for Allstate Insurance Company and Allstate Indemnity Company was announced in March, and amounted to a $245 million reduction, according to the insurance department.

Action to cut the rate, the department said, was the result of months of negotiations and an administrative hearing, which began with Allstate requesting no change to their auto insurance rates, and mirrors reductions made by other major auto insurers. Allstate's request was denied

According to the department’s calculations, Allstate's customers will save on average approximately $124 per year.

The administrative law judge agreed with the California Department of Insurance (CDI) claim.

Before the court ruling, lawyers for the department had argued that Allstate's rates should be reduced significantly because they were overly excessive to begin with.

The department said many insurers in California have significantly lowered auto insurance rates for their policyholders, and in 2007, Californians saved more than $700 million through reduced auto insurance rates.

Allstate, the department contended, should be held to the same standard as other auto insurers, based on data submitted to the department. It was noted that in October 2007, Commissioner Poizner approved $100 million in reduced auto insurance rates for AAA of Northern California and in July 2007, he approved a $65.8 million reduction for GEICO customers.

Allstate Indemnity Company is the fifth-largest auto insurer in California; Allstate Insurance Company is ranked ninth. Collectively, they earned $1.7 billion in auto premiums for insuring approximately two million vehicles in 2007. Allstate has nearly nine percent of California's auto insurance market, the department said.

Allstate said its pending action asks the court to review “key evidence which was excluded in the underlying administrative rate hearing.”

Allstate Senior Corporate Relations Manager Peter DeMarco said in a statement that, “Allstate wants to lower its auto rates and reduce the cost of auto insurance in California, especially during difficult economic times for our customers. However, the proposed auto rate reduction Allstate is being asked to take is neither fair nor reasonable.”

The company, he said, is reviewing the details of the court’s ruling and will “continue to explore our options going forward.”

Mr. DeMarco noted that in requesting the stay, Allstate had committed to setting aside money in a separate account to be used for refunds if the appeal is ultimately denied.

However, he said that the department, by requiring Allstate to implement a 15.9 percent rate decrease before its appeal is heard, means that if Allstate eventually wins the appeal down the road and the rate order is set aside as erroneous, “there is no way to recover those losses.”

Allstate, according to Mr. DeMarco, is being asked to lower its rates by almost twice as much as any other similarly situated insurance company, “even though our rates are already competitive.”

“If all of Allstate’s evidence had been considered in that hearing, we believe the outcome would have been a fair and reasonable rate reduction for our customers,” he said.

“Because key evidence was not considered during the administrative rate hearing, we have asked for a separate review by the court,” he added. “This information provides a more comprehensive representation of our auto rate practices. Filing the appeal also allows us the ability to get an independent interpretation of the law in a neutral setting.”

Travelers Quarterly Net Off 11%

St. Paul, Minn.-based Travelers Companies reported first-quarter net income fell 11 percent to $967 million as investment income dropped 12 percent; however, the firm upped its 2008 operating earnings projections.

The insurer’s net income of $967 million, or $1.54 a share, compared with $1.09 billion, or $1.56 a share in the comparable period last year.

Travelers said it now projects 2008 generated operating income of $5.55 to $5.85 per share, up from a previous range of $5.40 to $5.75 a share.

Despite the net income drop, Jay Fishman, Travelers chairman and chief executive officer, said in a statement that the company is starting the year “with strong financial results, particularly in light of the more challenging investment environment and the continuation of competitive insurance dynamics.”

He pointed to operating return-on-equity in excess of 15 percent and a combined ratio below 88.

Mr. Fishman noted “solid top-line performance in all our business segments, with continued strong retentions and renewal price changes consistent with previous quarters.”

Sectors of growth, he said, are “a testament to our disciplined approach to selecting risks thoughtfully and adding value to our agents, brokers and customers.”

Despite the falloff in investment income, he said the company is “very pleased” with its investment portfolio. The fixed income portfolio continued strong. Mr. Fishman said “overall returns were impacted by lower short-term interest rates and much smaller real estate and private equity gains compared to the prior-year quarter.”

The company’s financial strength, he said, positions it “to consider investment portfolio opportunities that may come along as a result of the current investment environment.”

Among its reported highlights, the company cited net written premiums of $5.2 billion, a 1 percent increase from the prior-year quarter, or a 2 percent increase when adjusted for the sales of Afianzadora Insurgentes and Mendota.

Travelers cited combined ratios in business insurance of 86.6; financial, professional and international insurance of 81.4; and personal insurance of 92.2.

The consolidated combined ratio was 87.6.

Net favorable prior-year reserve development was $261 million after-tax ($400 million pre-tax) in the current quarter, compared to $40 million after-tax ($62 million pre-tax) in the prior-year quarter.

Net investment income was $650 million after-tax ($815 million pre-tax), compared to $737 million after-tax ($960 million pre-tax) in the prior year quarter.

Travelers said operating income for business insurance increased by $5 million to $683 million. Operating income for the financial, professional and international segment increased by $52-to-$208 million.

Personal insurance operating income was off by $85-to-$181 million.

Personal insurance results, the company said, were driven down “in part by increased noncatastrophe-related weather losses.”

Continued Softening Seen For U.S. Reinsurance Market

Rate reductions are expected to continue for U.S. reinsurance accounts with the midyear renewals unless catastrophe losses increase in the near term, a reinsurance brokerage said.

Guy Carpenter’s comments came in a report on the reinsurance market titled “The Market’s Mixed Signals: Reinsurance Renewals at April 1, 2008.”

The report covers the reinsurance market for the United States, Japan, Republic of Korea and India.

For the United States, the report said rates continued their decline at April 1 renewals, continuing what was seen for Jan. 1.

The report said that looking ahead to midyear renewals, the current trends indicate the declines will continue, assuming losses remain low. However, the report cautioned that if predictions of an above-average hurricane season come true, “the industry’s two-year string of good fortune may come to a close.”

The report said U.S. rate reductions were “substantial” while in the rest of the world there appeared to be less flexibility with rates.

Japan had several issues with catastrophe, fire, windstorm and earthquake placements.

While windstorm cover in Japan experienced softening, reductions could be limited, but “opportunistic purchases” can exploit the soft market.

Fire losses in Japan led to a challenging market, but capacity was sufficient once terms and conditions were settled. Reductions in the catastrophe market were termed modest and other markets seen as stable. Rate reductions generally were no more than 10 percent.

Korea was mixed with property event excess of loss treaties experiencing reductions as high as 20 percent, while property risks ranged from increases up to 40 percent or reductions of 15 percent.

India, which has had little catastrophe activity in 2008, is experiencing catastrophe excess of loss program reductions ranging from 40-to-50 percent, the report said.

“Against the background of a softening reinsurance market in Asia, cedents were generally successful in their push for rate reductions,” Edward Fenton, managing director of Guy Carpenter, said in a statement.

“However, reinsurers were able to differentiate between clients and territories. Where rate levels were judged to be nearer to technical minimums, loss history is poor or capacity is tight, the market exercised greater rate discipline,” he added.

Liberty Mutual To Buy Safeco For $6.2 Billion

Liberty Mutual Group announced today it has reached an agreement to acquire Seattle-based insurer Safeco Corp. in a transaction valued at $6.2 billion.

In announcing the move, Boston-based Liberty Mutual said it will pay $68.25 per share in cash to become the fifth-largest U.S. property-casualty insurer. As of 2007, the combined 2007 direct written premium of the firms was $26.1 billion.

The proposed transaction, approved by the boards of both companies, is subject to approval by Safeco’s shareholders as well as regulators.

The transaction is expected to be closed by the end of the third quarter, the companies said. The transaction is not subject to financing contingencies.

Liberty Mutual Group is currently the sixth-largest U.S. p-c insurer, based on the company’s 2007 direct written premium of $20.2 billion, while Safeco had 2007 direct written premium of $5.9 billion.

Following the transaction, Liberty said Safeco will become part of the group’s Agency Markets business unit, which had revenues of $5.6 billion in 2007. Combined, the organization will be represented by about 15,000 independent agencies.

“The addition of Safeco significantly expands and strengthens the Liberty Mutual Group,” said Edmund F. Kelly, Liberty Mutual Group’s chairman, president and chief executive officer.

Safeco’s operations and product mix, he added, “complement our existing Agency Markets operations. Additionally, both organizations have superb surety businesses, which when combined will form the second-largest surety business in the United States.”

Paula Reynolds, Safeco’s president and CEO, called the deal an “opportunity to take West Coast inventiveness and launch it with a global brand at a substantial premium to Safeco shareholders.”

“Safeco is an excellent addition to Liberty Mutual Agency Markets, and I look forward to working with the Safeco leadership team to deliver even greater value to our independent agent partners,” commented Gary Gregg, president of Liberty Mutual Agency Markets.

The company announcement said that with revenue approaching $12 billion, Agency Markets will rank third in personal lines and fifth in commercial p-c products distributed through independent agents in the United States.

In light of the proposed transaction, Safeco said it has postponed the shareholders annual meeting it had scheduled for May 7. Safeco added that it will provide information on the timing of the annual and special shareholder meeting to approve the transaction announced today when available.

Safeco said it has been advised in the transaction by Morgan Stanley & Company Inc. and Skadden, Arps, Slate, Meagher & Flom LLP.

Agency Markets, a major business unit of the Liberty Mutual Group focusing on independent agency distribution, had $5.2 billion in net written premium in 2007 and has approximately 7,000 employees.
Liberty Mutual Group offers personal automobile, homeowners, commercial multiple peril, commercial automobile, general liability, surety, workers’ compensation, global specialty, group disability, assumed reinsurance and fire coverage

The company employs over 41,000 people in more than 900 offices throughout the world.

Safeco provides insurance for individuals and for small- and mid-sized businesses, including personal auto and homeowners, as well as coverage for small- and mid-sized businesses, and surety bonds.

Mass. Business To See 1% Comp Rate Cut

Businesses in Massachusetts will see an average reduction of 1 percent on their workers’ compensation insurance policies under new rates approved by the Massachusetts Insurance Division, it was announced yesterday.

News that the state’s 2008 rate-setting agreement for comp, effective Sept. 1, was completed was released by the office of Gov. Deval Patrick, which said the result of the rate-setting proceeding is a projected saving for businesses of $11 million.

The new rates, averaging 1 percent per employer, mark the ninth time rates have decreased since 1994, the announcement noted.

“This most recent rate cut balances the need to help businesses control costs with the responsibility to provide employees with appropriate benefits,” Mr. Patrick said in a statement.

“Lowering the cost of workers’ compensation insurance is very much in keeping with our larger goal of improving the state’s business climate so that we can grow the economy and create jobs,” he added.

The Workers’ Compensation Rating and Inspection Bureau (WCRIB), a private, nonprofit association of insurers, had requested a 2.3 percent increase in 2008 workers’ compensation rates. Had the WCRIB requests been approved, businesses would have seen the cost of providing compensation benefits to their employees increase by $25 million, according to the Patrick administration.

Paul Meagher, WCRIB president, said agreement between his organization, the Insurance Division’s State Rating Bureau and the attorney general was the earliest rate filing resolution “achieved in recent years” and “was due to the spirit of cooperation among all the parties.”

But, he said, “while this latest decrease is good news for employers, unchecked rising medical and pharmaceutical costs could cause instability in the state’s workers’ compensation voluntary market, which would drive more employers into the residual market, already the state’s second-largest workers’ compensation insurer.”

The settlement on rates was signed yesterday by Insurance Commissioner Nonnie Burnes and Attorney General Martha Coakley. In addition to the 1 percent average rate cut, the agreement further reduces average rates for small businesses, resulting in a statewide average rate reduction of 1.1 percent—a savings that amounts to approximately $11 million for Massachusetts employers, state officials said.

“The Division of Insurance’s objective is to ensure a fair and equitable rate that protects workers without overly burdening employers,” said Commissioner Burnes. “The 2008 rate cut offers further proof that reforms have created efficiencies within the system that continue to produce savings for businesses.”

As part of a comprehensive overhaul of the Massachusetts workers’ comp system in 1991, efficient claims management, workplace safety and return-to-work programs were increasingly emphasized. The newest reduction reflects a total rate decrease of 68 percent since 1994, officials said.

USGS Earthquake Map Increases Risk In Oregon, Wash.

The U.S. Geological Survey has released an updated version of its National Seismic Hazard Maps that predict decreased earthquake intensity for most of the United States except for two states.

The USGS said while most of the country saw a decrease in intensity estimates, intensity has increased for Oregon and Washington.

The map utilized the latest scientific information available to determine earthquake intensity.

The increased intensity in western Oregon and Washington is due to new ground motion models for the offshore Cascadia subduction zone.

Models put the ground motion intensity in the Central and Eastern United States at about 10-to-25 percent lower. Ground motion estimates in most of California, Utah, Nevada, Arizona, Idaho and western Montana are as much as 30 percent lower for shaking that affects multistory buildings. For those six states, ground motion estimates remain unchanged for one- and two-story buildings.

Among some noteworthy items, the Wasatch fault in Utah was modeled to include a 7.4 earthquake. Offshore earthquakes were added as possible sources of earthquake for Charleston, S.C.

The maps are available at earthquake.usgs.gov/research/hazmaps/.

Last week the USGS, along with its partners, released a new earthquake rupture forecast for California—the first ever such forecast done statewide. That forecast focused on the likelihood of earthquakes happening on specific faults.

In an e-mail statement, Loretta Worters spokeswoman with the Insurance Information Institute said the revised map was well received by the insurance industry.

"This information obviously is useful from a mitigation standpoint as well as when determining a home's risk to earthquakes," she said.

Best Says 2007 Meant Record Profit For P-C Insurers

U.S. property-casualty insurers ended 2007 with a strong fourth quarter, but year-end results fell short of their 2006 record profits and the sector saw a drop in net premium written for the first time since 1943, A.M. Best Co. reported.

Net income fell almost 7 percent to $66.5 billion from $71.3 billion in 2006. The industry’s after-tax return on equity slipped to 13 percent in 2007 from 15.3 logged in 2006, the Oldwick, N.J.-based rating service said.

P-c insurers saw their second consecutive underwriting profit in 2007, posting a $22.1 billion gain compared with $32.0 billion in 2006, said Best.

Driven by across-the-board softening in personal and commercial lines pricing, leakage of premium, and a growing interest in alternative forms of risk transfer, net premiums written fell nearly 1 percent to $446 billion in 2007, Best reported.

It found that the p-c industry’s combined ratio deteriorated modestly to a still profitable 94.9 in 2007, up from 92.2 in 2006.

Best said strong operating results pushed policyholder surplus up by 7.1 percent to $527.5 billion in 2007 from $492.8 billion at year-end 2006.

Total catastrophe losses were an estimated $6.7 billion in 2007—among the lowest years on record, down from $9.2 billion in 2006, the rating service noted.

The personal lines segment’s underwriting results remained strong on favorable but flattening private passenger auto loss-frequency trends, moderate but increasing loss-severity trends and a lack of significant catastrophes, Best said.

The company reported that the commercial lines segment saw its second consecutive underwriting profit in 2007, reflecting continued underwriting discipline, favorable loss-reserve development and mild catastrophe losses.

The U.S. reinsurance segment reported a combined ratio of 94.4 in 2007, slightly better than the 94.9 reported for 2006, said Best.

According to Best, the U.S. p-c industry is projected to record a modest underwriting gain in 2008, as insurers are expected to maintain the delicate balance between growth opportunities and profitability.

Fla. Senate Okays Insurers’ Antitrust Exemption Repeal

The Florida state Senate approved legislation yesterday that would repeal state insurers’ antitrust exemption and freeze rates for the state-run property insurer.

Senate Bill 2860 was passed on a 32-7 vote.

A Senate staff analysis of the legislation refers to its “major” changes to the state’s insurance laws.

Among its provisions are those freezing rates for the state-run Citizens Property Insurance Corp., increasing the penalties for violations of the insurance laws, and changing the standards and procedures for rate filing.

The provision that has created significant concern among insurers would subject their industry to the Florida Antitrust Act and enforcement under the state Attorney General’s Office in addition to the authority already held by the Office of Insurance Regulation.

“The Senate bill does not address the delicate balance in Florida between long-term market stability and immediate rate relief,” said David Sampson, president and chief executive officer of the Property and Casualty Insurers Association of America (PCI).

“Measures that dramatically increase government regulation over company operations hurt our efforts to seek long-term market stability. Such harsh measures squelch our efforts to attract and retain private insurers to write more policies in Florida,” said Mr. Sampson.

Insurance issues over trade practices, Mr. Sampson argued, should be addressed through the OIR. “Adding an additional layer of regulation through the Florida Antitrust Act threatens to hurt—not help—homeowners' ability to access property insurance in the private market,” he said.

Liz Reynolds, Southeast state affairs manager for the National Association of Mutual Insurance Companies, also offered harsh criticism of the bill and warned against its implications.

“This bill attempts to punish insurance companies with increased authority by the Office of Insurance Regulation at the expense of encouraging a competitive environment that would provide more choices for consumers,” she said. “It also subjects insurers to Florida antitrusts laws, setting up dual regulation.”

Ms. Reynolds also took exception to praise offered by Sen. Jeff Atwater, R-North Palm Beach, for a provision in the bill allowing Citizens Property Insurance Corp., the state-run insurer, to adopt a “glide path” to actuarially sound rates using a “stairstep” approach to increasing rates over several years.

“At the same time members of the Senate recognize the need for Citizens to become solvent through collection of actuarially sound rates, they are chilling the private marketplace with tighter regulation on the ratemaking process,” Ms. Reynolds said.

“Don't consumers in the private market deserve the same ‘glide path’ to reach solvency for their chosen insurer instead of obstacles to providing appropriate coverage at appropriate rates?” she asked.

However, State Insurance Commissioner Kevin McCarty, who heads the OIR, took a different stance, focusing on the increased authority the bill provides him.

“There are numerous consumer safeguards in this key piece of legislation that will protect Florida consumers from unnecessary and unsupported property insurance rate increases,” Mr. McCarty said. “It will stop insurance companies from bypassing my office and increasing rates through the use-and-file or arbitration processes. It also will increase the office’s authority to make certain that companies pay their policyholders’ claims on time,” he added.

The OIR has said it is not concerned regarding the antitrust provisions in the bill.

At the federal level insurers for years have had a limited exemption from antitrust law under the McCarran-Ferguson Act. The provision allows some exchange of information to provide for the ratemaking process.

Florida ’s bill also seeks to strengthen the state’s Insurance Capital Build-Up Incentive Program, which was designed to lure new capital to the homeowners market by offering low-interest loans to companies willing to add a matching amount to their surplus.

The bill appropriates $250 million for the program. It requires companies seeking the loans to use a percentage of their capital to assume policies now issued by Citizens.

“Through its funding for the Capital Build-Up Incentive Program, the bill will help continue to encourage growth in Florida’s insurance market—which already has seen more than 20 new companies and $3.4 billion in capital added to the Florida market since January 2006,” Mr. McCarty said.

No companion legislation exists in the state House of Representatives, and Mr. Sampson said he expects members there “will have a more comprehensive debate about the future of the Florida property insurance market.”

Analyst Foresees Rise In Auto Rates

Private passenger automobile insurance rates may increase this year as insurers seek to keep up with worsening loss cost trends, an investment analyst said.

In an analyst’s note, Meyer Shields, with the investment firm Stifel Nicolaus, said auto insurers can now justify their requests for rate changes because they “can now make a legitimate actuarial case for rate increases, despite their recent profitability.”

He said most insurers include adjusted state-specific premium and loss data to back up their calculations, not companywide historical results.

He noted that only 19 states, representing 50 percent of private passenger auto written premium, require prior rate approval, and he believes that many will allow reasonable rate increases.

Both Allstate and Progressive should benefit from increases, he noted, improving Allstate’s competitive position and stimulating more shopping at independent agents’ offices, a benefit for Progressive.

Mercury General may not fare so well due to its significant market share in California, a state where other companies are expected to encounter difficulty in getting rate increase requests approved.

Slow growth remains a risk for both Allstate and Progressive, even as other insurers raise prices in the face of increased loss trends. However, he said, the short-tail nature of this line “suggests that this is a temporary challenge” because companies that react late to loss trends “see the greatest disruption when they finally adjust their rates.”

Allstate Holds Off Fla. Shutdown Order

Allstate kept its Florida companies in operation yesterday, filing a motion with an appeals court asking it to reexamine the state insurance commissioner’s order to stop writing new business.

By making the request for a rehearing by the Florida First District Court of Appeal in Tallahassee, the company can keep selling new policies while the case, sparked by a state request for Allstate documents, is pending.

The First District had lifted a stay of Commissioner Kevin McCarty’s order on April 4; however, it gave the company until yesterday to file for a rehearing.

Allstate submitted its motion shortly before a 5 p.m. deadline, which if missed would have meant the suspension order would have taken effect. The appellate court on April 4 found that Mr. McCarty was within his authority to suspend the company, and that the suspension would take effect unless Allstate pursued the matter further.

Florida ’s court battle with the insurer has been underway since October of last year, when the commissioner issued a subpoena seeking thousands of company documents in advance of a hearing looking into company business practices and rate setting.

On Jan 16 he suspended the company when it failed to provide the documents he sought as part of the long-delayed hearing. Among the information sought was material that critics said outlined a bare-knuckled approach to claims handling.

The company eventually disgorged a report from the McKinsey consulting firm it had long argued was privileged, involving trade secrets, but it has continued to balk at other document requests, according to the Office of Insurance Regulation.

In its latest motion, Allstate argued that the panel erred in its decision to grant the suspension by allowing Mr. McCarty to subpoena information without prior judicial review, which meant Allstate was not given its due process.

Additionally, the company argued that the suspension order was vague regarding specific incidents of harm or danger, and that the court erred in its interpretation of certain facts and Allstate’s ability to comply with the order.

While the court had ruled that Allstate “can determine the duration” of its suspension by simply complying with the subpoena, Allstate argued that doing so would require the company to produce attorney-client privileged information that, under precedent, does not have to be produced for agency review.

OIR officials have disputed a 196-page list of objections that the company has filed to maintain secrecy. Allstate has argued that it has cooperated with the department and has provided over 400,000 pages of documentation.

Edward Domansky, a spokesman for the OIR, said the office has until 5 p.m. tomorrow to file its response to the latest Allstate motion, but “it’s up to the court to decide what happens next.”

Mr. McCarty, according to Mr. Domansky, “will continue to pursue this matter until Allstate has complied” with the subpoenas and provided the requested documentation. “The commissioner remains committed to doing everything he can to protect Florida consumers,” he said.

Fla. Senate May Drop Insurers’ Antitrust Protection

Florida lawmakers are considering legislation that would revoke the insurance industry’s antitrust protections in the state as part of an effort to resolve the difficulties facing the state’s insurance market.

The legislation, Senate Bill 2860, is expected to be voted on by the Senate this week and makes several “major” changes to the state’s insurance laws, according to a senate staff analysis.

Among the provisions in the bill are those freezing rates for the state-run Citizens’ Property Insurance Corp., increasing the penalties for violations of the insurance laws, and changing the standards and procedures for rate filing.

However, a provision that has significant concern for insurers would subject the insurance industry to the Florida Antitrust Act and enforcement under the state Attorney General’s Office in addition to the authority already held by the Office of Insurance Regulation.

“Dual regulation is duplicative in nature and creates confusion for everyone involved,” said David Sampson, president and chief executive officer of the Property and Casualty Insurers Association of America (PCI).

“We believe that regulation of trade practices should remain the domain of the insurance department. The Insurance Code of Florida already provides sufficient regulatory authority over insurers through the Office of Insurance Regulation,” Mr. Sampson said.

He noted that there is nothing to prevent Florida from applying its own antitrust laws to the insurance industry, but he said the PCI fears “that this would only further discourage insurance companies from writing policies in Florida.”

While Mr. Sampson fretted the potential implications that state antitrust laws and their enforcement could provide, the current insurance regulator was more at ease. Edward Domansky, a spokesman for the OIR, said that the antitrust language is “not a concern” to the office.

Mr. Sampson said it “appears likely” that SB 2860 will be passed by the Senate, but noted that there is currently no companion legislation in the state House. He said he hoped leaders in that chamber would consider other means of helping the citizens of Florida.

“The punitive measures against insurers in the Florida Senate's property insurance proposal get us no closer to where we need to go—finding long-term solutions that protect homes and families and shield the state from potential bankruptcy,” he said. “If we cripple the private insurance market, we threaten the economic future of the state and place risk on the backs and wallets of all Floridians.”

At the federal level the insurance industry has a limited antitrust law exemption under the McCarran-Ferguson Act. Enacted in 1945 in response to a Supreme Court ruling the year before, the law specifically set insurance as a state-regulated industry and allows insurers to cooperate on data collection for ratemaking purposes.

Fla. House Incentive Bill Seeks To Lure Insurers

The Florida House of Representatives has passed legislation designed to attract new insurers to the state and assume policies from the state-run insurer of last resort, Citizens Property Insurance Corp.

Approved Thursday on a 109-6 vote, the legislation (HB 5057) provides for $250 million to be appropriated to the state’s Insurance Capital Build-Up Incentive Program.

The ICBIP was established to lure carriers to the residential property market by offering loans of up to $25 million to new or existing residential property insurers.

Supporting the financial backing are surplus note agreements repayable over 20 years with interest set at the ten-year Treasury rate on unpaid principal. In addition, the legislation would extend the deadline for companies to apply for ICBIP loans until September.

The ICBIP was initially established in 2006, but at that time was funded directly by Florida taxpayers. To obtain the loans, companies are also required to contribute to their surplus an amount at least equal to the size of the loan they receive.

Companies are also required to put up matching amounts of money to receive the loans.

The bill has been sent to the state Senate, where on Tuesday the General Government Appropriations Committee approved a related measure. Senate legislation (SB 2860) would continue a freeze on Citizens’ rates until 2009, beef up penalties for insurers who violate state laws, broaden the state's power to block rate hikes, and hold the industry accountable to state antitrust and unfair trade practices laws.

Should the House bill pass, insurers wishing to take advantage of the ICBIP would have to agree to write coverage for policies taken out of Citizens equaling 10 percent of its net or gross written premium, not including renewal premiums.

Eli Lehrer, a senior fellow at the Competitive Enterprise Institute, harshly criticized the legislation, arguing that if enacted, it would only compound the potential problems facing the state.

“I thought things could not get worse in Florida. I was wrong,” he said. “This bill performs the feat of destabilizing Citizens and the private market at the same time.”

Ultimately, according to Mr. Lehrer, the bill would encourage the creation of a “bevy of thinly capitalized domestics” that would take advantage of the system to reap large profits and then turn their liabilities over to the state’s insurance guaranty fund “as soon as a big storm hits Florida.”

D&O Rates Seen Headed For The Outer Planets

The collapse of the subprime mortgage market has sent directors and officers liability insurance rates for the finance sector skyrocketing--and the upward spike is likely to continue for the foreseeable future, an industry professional predicted yesterday.

That forecast came from Greg Flood, president of IronPro, Ironshore Insurance’s professional liability facility in New York.

Mr. Flood said that rates have jumped as stockholder suits have piled up. “The first quarter of this year, many programs rates have gone up 100 percent,” he said, following premium hikes of 30-to-35 percent in the fourth quarter of 2007.

For the accident years 2007 and 2008, “the losses we’re talking here could be $8 billion” for D&O and errors and omissions insurers, he said.

Adding to that bleak assessment, Mr. Flood said, “there is a good chance those years might run a combined ratio of 200 for financial institutions.”

He noted that class-action filings against financial institutions in the first quarter are up between 400- and 500 percent compared with last year.

Legacy insurers, he said, have been dropping clients' limits along with the increase in rates. A major insurer that had $25 million of a company’s program this year “might cut limits to $15 million,” he added.

Such changes, he said, create opportunities for other carriers, but “you see people coming in very cautiously.” He added that businesses seeking coverage need to present a compelling reason why they will not be sued.

Mr. Flood said his firm is stepping in very selectively, with some high attachment points over $100 million. Before providing any coverage, he said, underwriters pore through businesses financial statements “and try to get them to tell us what keeps them up at night.”

Of the 600 submissions a month received by the firm, “we quote terms on about 40 percent,” he noted.

The situation is unlikely to change anytime soon, he said, and it may be 2011 before the total impact of the subprime defaults is over, by which time financial services “will probably have another scandal.”

Mr. Flood is not only sarcastic, but serious about such scandals, rattling off a list of revelations about finance sector improprieties that have been virtually continuous since 2000 involving incidents including laddering, securities analysts, mutual funds and commercial insurance brokering.

The current problems involve a constant trickling of information about subprime involvements, which he described as a “slow-moving train wreck.”

Storm Count Could Stay Even Despite Global Warming

While hurricane intensity could likely increase as the Earth warms, the regions in which they form and possibly even the maximum number of storms per season could remain the same, a weather expert said here.

Robert Korty, assistant professor, department of atmospheric science at Texas A&M University, outlined for inland marine underwriters the conditions under which hurricanes form, and provided some insight into what could happen to hurricane activity as global warming conditions progress.

His comments were made during the Inland Marine Underwriters Association’s 75th Annual Conference.

While hurricanes tend to form over water that is around 80 degrees Fahrenheit, Mr. Korty said that 80 degrees is not a “magic number.”

Hurricanes in the Atlantic and identical tropical cyclones in other parts of the world have formed in their respective areas throughout history, during which time the Earth has gone through various heating and cooling cycles, he explained.

If there was something special about the number 80, Mr. Korty said, then hurricanes would begin to form in water that currently averages 77 degrees if the Earth warmed by an average of three degrees, yet that is not expected to happen.

Additionally, he said the number of tropical cyclones and hurricanes each year reaches between 90 and 100.

Scientists, Mr. Korty said, are unsure why exactly that is. “We don’t know why there are any tropical storms at all, or why there are not 1,000 or 10,000. It’s pretty close to 100 each year, and what controls that is something that we are working really hard to figure out.”

Storm intensity, though, Mr. Korty said, will likely increase as the Earth warms. But he noted that certain factors regarding the Earth have and will prevent hurricanes from reaching speeds far in excess of what the maximum is today, which is about winds of 180-to-200 miles per hour.

For example, Mr. Korty said, wind shear limits how intense a storm gets, and hurricanes expend much of their energy “restoring symmetry” with their surroundings.

Additionally, he said the ocean gets “very cold, very fast” at a depth of about 200 feet. Basically, as hurricanes stir up the waters, warmer water necessary for fueling hurricanes mixes with the cooler, deeper water, and that limits hurricane intensity.

What can be expected is that as the Earth warms, it is likely that more of the hurricanes that do form will reach maximum intensity.

Mr. Korty stressed that knowledge about hurricanes is limited, and he said that information used in making assumptions about hurricane behavior should be looked at over very long periods of time.

For example, he cast some doubt on the concept of the multidecadal signal, which refers to the belief among some atmospheric scientists that hurricane activity in the Atlantic ebbs and flows according to 15- to 20-year cycles.

This theory is based on the fact that Atlantic hurricane activity was more active in the 1950s and ‘60s, less active in the ‘70s and ‘80s, and more active in the ‘90s through today, he related.

But Mr. Korty said the time period used to make this assumption is far too short to say with any degree of certainty that there is a pattern or cycle.

He likened this thinking to weather patterns from the 1940s to the 1970s, when the degree of global warming reached a plateau and some scientists believed the Earth was heading toward another ice age. If looked at over a longer period of time, however, Mr. Korty noted that it is clear the Earth is warming, rather than cooling. It is helpful, he said, to “keep the long term in perspective.”

P-C March Rates Down 12%, MarketScout Barometer Shows

The rate of decline in U.S. property and casualty rates, which plummeted 12 percent last month, may begin to slow this year, but decreases will continue, according to an insurance exchange executive.

“We anticipate rate decreases to moderate for the remainder of 2008. However, a lessening rate decrease in 2008 does not mean the soft market is coming to an end,” commented Richard Kerr, chairman and chief executive of MarketScout, in revealing the 12 percent average commercial insurance rate decline for March.

“The soft market began in February 2005, so after 36 months, rate reductions will naturally moderate. For instance, including the March 2008 reduction of 12 percent, rates are down almost 30 percent from March 2005 to March 2008,” said Mr. Kerr in a statement.

He also pointed out that insurers remain hungry for all types of business, including programs with starting books of business as low as $2 million.

“Four years ago, no one would talk to you unless you had a $7.5 million book to kick-start your program,” he said. “A good distribution network supported by technical underwriting skills and as little as $2 million in premium will attract attention today.”

MarketScout--a Dallas, Texas-based electronic insurance exchange, which underwrites and distributes product lines to a 60,000-member agency network--has been tracking the U.S. p-c market since 2001.

The company said its monthly “Market Barometer” is created using data assimilated via its online insurance exchange, and is supported by in-person surveys of retail agents, company personnel, wholesale brokers and managing general agents.

MarketScout said its barometer findings are also supported by surveys conducted by The National Alliance for Insurance Education and Research. These surveys were conducted during CIC and CRM institutes held across the United States in March 2008.

MarketScout says its barometer is unique because it uses mathematically-driven data corroborated by in-person surveys.

The rates of decline for March 2008, broken down by coverage class, industry class and account size, were as follows:

By Coverage Class :
• Commercial Property—down 14 percent
• Business Interruption—down 12 percent
• Inland Marine—down 11 percent
• General Liability—down 14 percent
• Umbrella/Excess Liability—down 12 percent.
• EPLI—down 12 percent
• Commercial Auto—down 8 percent
• Professional Liability—down 9 percent
• D&O Liability—down 9 percent
• Workers’ Compensation—down 8 percent
• Fiduciary—down 8 percent
• Crime—down 8 percent
• Surety—down 7 percent

By Account Size :
• Small Accounts (up to $25,000)—down 12 percent
• Medium Accounts ($25,001-to-$250,000)—down 14 percent
• Large Accounts ($250,000-to-$1 million—down 12 percent
• Jumbo Accounts (over $1 million)—down 13 percent

By Industry Class :
• Manufacturing—down 14 percent
• Contracting—down 14 percent
• Service—down 14 percent
• Habitational—down 12 percent
• Transportation—down 12 percent
• Public Entity—down 10 percent
• Energy—down 10 percent

According to the company, more than 40 "A"-rated carriers participate in the MarketScout exchange platform at http://www.marketscout.com.

Soft Market Gaining In First Quarter, RIMS Says

BY CAROLINE MCDONALD
NU Online News Service

Corporate risk managers are the beneficiaries of a market with continually falling insurance rates , in the largest quarterly drop since 2005, according to the RIMS Benchmark Survey of policy renewal prices as reported by corporate risk managers.

The momentum at which the market has softened “has been a surprise,” David Bradford, editor-in-chief of Advisen, told National Underwriter. “I’m not entirely sure why we saw things surge a little bit in this quarter.”

Mr. Bradford said the insurance industry “continues to be overcapitalized, continues to post profits, and surplus continues to accumulate—all factors that contribute to the competitiveness of the market.”

He noted, however, that “it’s not entirely clear why this state of affairs has been more or less constant over the past couple of years—that it should suddenly result in an uptick in the rate the market is softening.”

What will change the momentum? Barring a “fairly substantial natural catastrophe—maybe even required on the order of 2005, certainly 2004—I don’t think anything’s going to stop it in the near term,” he said.

Mr. Bradford pointed out that insurers are still posting favorable results, and “Lloyd’s had a banner year.” He added, however, that one thing not often discussed is that “rate levels are a year old by the time they get published. The fact that insurers are still publishing such strong results keeps the pressure on them to write more business at the supposedly very profitable rates.”

While underwriting discipline is difficult to project, he said that since the beginning of 2004, rate levels overall have lost 50 percent of the gains made from 2001 to 2003.

“When you’ve given up half of those gains,” he said, “it’s hard to say that underwriting discipline is holding. There’s no question that the market is extremely competitive.”

What’s more, in some lines of liability—like general liability and workers’ compensation—Mr. Bradford said insurers have given up about two-thirds of the gains they made between 2001 and the end of 2003.

All this, however, is good news for risk managers. “There’s no question this is definitely a buyers’ market right now,” he said. “The problem is, though, the market tends to boomerang. Once it turns, it’s going to turn sharply. So I’m not sure the cycle does anybody any good in the long run. But at this point in the cycle it certainly looks good for risk managers. So they should take advantage while it lasts.”

According to the report, u ndeterred by mounting claims from the meltdown of the subprime mortgage market, the average directors and officers liability (D&O) premium fell 19 percent in the first quarter — the largest decrease of all the lines of business tracked by Advisen for the survey.

Continuing the trend of steady, moderate decreases exhibited over the past two years, general liability premiums fell another 2 percent. After demonstrating a moderating trend over the course of 2007, workers ’ comp price decreases surged down during the first quarter, falling 11 percent. In a clear indication that competition is returning to catastrophe-exposed regions, property premiums fell 6 percent—the largest quarterly de crease since Hurricane Katrina, according to the survey.

“We expected to see the soft market continue into 2008,” John R. Phelps, a member of RIMS board of directors and director of business risk solutions for Blue Cross and Blue Shield of Florida Inc., said in a statement. “Not only are soft market conditions ongoing, they appear to be accelerating, due in no small part to the excellent combined ratios for key markets. This bodes well for insurance buyers this year.”

Mr. Bradford said in a statement: “It is an indication of just how overcapitalized the commercial property and casualty insurance industry is. Rapidly deteriorating rate levels will probably wipe out insurer underwriting profits this year, but if there are no major catastrophes, premiums should still continue to fall for a while.”