NAIC Gets Earful Over Data Collection Proposal

Insurance industry and consumer groups remain bitterly at odds over a controversial proposal to collect market conduct data as part of the annual statement process, and house it in a centralized data bank.

The issue pits those in the industry raising concern over the confidentiality of the data, as well as how it would be treated if released, against consumer advocates who say such data should be public because it will benefit consumers and even keep the insurance market healthy.

The proposal was the subject of a conference call yesterday that drew over 100 participants, including both industry and consumer group representatives. The May 28 call was arranged by the Executive Committee of the National Association of Insurance Commissioners.

The proposal must be approved by the executive committee and then the NAIC’s plenary before it becomes NAIC policy.

NAIC President Sandy Praeger, who is the Kansas insurance commissioner, started the call by saying regulators would not take action during the call itself, and possibly do nothing definitive during the NAIC’s summer meeting this week in San Francisco, which starts on May 30.

She noted that because of work with vendors on annual statement filings, if action is not taken by July 1, the recommendations would not be implemented in 2009, but would then be considered for 2010.

The proposal was adopted by the NAIC’s Market Conduct “D” Committee on April 17, noted the committee’s chair, Montana Insurance Commissioner John Morrison. Among the elements of the proposal that Mr. Morrison detailed are:

• A centrally-stored facility.
• A collection of data through a supplemental filing.
• A May 1 deadline rather than a March filing required for financial information.
• A recommendation not to proactively sell data unless the NAIC membership directed the group to do so.

Mr. Morrison also noted that the data elements in the proposal are currently public, but any additional data elements would require a review before they could be added.

The proposal was suggested, he said, because it would streamline a system of market data analysis that started on a trial basis in 2002 and became permanent in 2004. Twenty-four states collected market-conduct data for 2007, and 29 will collect 2008 data, he said. Rather than providing data to individual states, a company could make one filing, he explained.

State Rep. Robert Damron, D-Nicholasville, Ky., who is president-elect of the National Conference of Insurance Legislators, said states need more time to look at the issue before they could decide if it is a policy they would support.

In an unusual move, Frank Keating, president and CEO of the American Council of Life Insurers, participated on the call. He commended regulators for their efforts to modernize the way data is collected, but also noted privacy laws and the possibility that companies could be made vulnerable to lawsuits if the information is made public.

The exposure to additional litigation, the way data could be used by class-action attorneys and perhaps other companies, and even the reason the data needed to be collected were raised by industry trade groups, including the American Insurance Association, the National Association of Mutual Insurance Companies, and the Property Casualty Insurers Association of America.

Companies testifying included Farmers Insurance, Liberty Mutual, Mass Mutual, Principal Financial Group and Travelers Group.

The AIA issued a statement noting it will continue voicing strong opposition to the data collection proposal during the NAIC’s national meeting.

"The NAIC is a non-profit, non-governmental entity. As such, it should not collect proprietary market data for which no guarantee of confidentiality can be provided,” according to AIA President Marc Racicot.

“This information is extremely sensitive, and if it were to be compromised, there would be needlessly harmful ramifications for both consumers and insurance companies,” he added. “In the states where insurers file market conduct annual statements, there are clear statutory requirements governing their confidentiality, and regulators must take appropriate steps to ensure this information remains confidential."

Mr. Racicot added that "insurers already operate in a highly-regulated environment. The annual financial statement filed every year by insurers--which contains financial, and not proprietary market information--is a key tool for regulators, consumers and investors to monitor the financial health and solvency of an insurance company."

Deirdre Manna, a PCI representative, noted that in an NAIC meeting in Washington on May 20-21, PCI President David Sampson urged regulators not to proceed with the proposal because the NAIC authority over preserving and protecting such information was still unclear.

Additionally, she raised the question of why the data was being collected in the first place. Originally, she said, the goal was to collect data so there would be fewer market conduct examinations. However, five years later, Ms. Manna added, insurers had not been shown specific tangible benefits.

The use of publicly available data by competitors and class-action lawyers was mentioned by several who spoke. However, these speakers also said that efforts to streamline the process are a good thing.

Meanwhile, a trio of NAIC-funded consumer representatives asserted the importance of having such data available to the public, and urged that the project be fully adopted.

The three were Birny Birnbaum, executive director for the Center for Economic Justice; Brendan Bridgeland, executive director of the Center For Insurance Research; and Gregory Squires, a professor of sociology, public policy and public administration at George Washington University in Washington.

Mr. Birnbaum said the only way there could be true regulatory modernization is if there is data that could be analyzed so improvements can be made. Consequently, he argued, market conduct analysis and data is needed and should be culled by regulators.

He called the argument that data would be misused “incredibly disheartening,” and added, “I don’t need insurers to tell me and other consumers what information I need to know.”

In addition, Mr. Birnbaum called the idea of insurers waiting over a year to access competitive information in other companies’ data “absurd,” because at that point competitive advantages would already be incorporated into company strategy.

Mr. Bridgeland argued that available data was actually good for the whole market, because if there is a general impression of denial of claims, it could drive down the perceived value of insurance policies.

In addition, Mr. Squires suggested that rather than just the choice of no data or abused data, there is in fact a third choice--“conclusive and accurate and informative data.”

Supreme Court Retaliation Ruling Could Expose Employers

A Supreme Court ruling allowing employees to file suit under a Reconstruction Era civil rights law claims retaliation by employers may expose those employers to more severe judgments, according to employment practices attorneys.

“The cost of being found to have retaliated for claims of race discrimination may just have gone up,” said Paul Mickey, a partner in the Washington office of Steptoe and Johnson LLP.

In a 7-2 ruling on the case of CBOCS West Inc. vs. Humphries, case no. 06-1431, the high court upheld an appellate court ruling that the Civil Rights Act of 1866, also known as a “Section 1981” claim for the law's place in the U.S. Code, should be interpreted to include retaliation claims, despite no language specifically relating to retaliation existing in the law.

“We agree with CBOCS that the statute’s language does not expressly refer to the claim of an individual (black or white) who suffers retaliation because he has tried to help a different individual, suffering direct racial discrimination, secure his Section 1981 rights,” wrote Justice Stephen Breyer in the court’s ruling. “But that fact alone is not sufficient to carry the day,” he added, citing precedent as the basis for the court’s decision.

What the decision does, said Russell Adler, an associate in the New York office of the law firm WolfBlock, is broaden an avenue for filing suit.

In filing a complaint under Title VII of the Civil Rights Act of 1964, which is more common, he said, an employee was required to first go through an Equal Employment Opportunity Commission administrative procedure and obtain a “right to sue” letter before filing the case in federal court.

Additionally, the complaint would have to be brought within 180 or 300 days of the action, depending on the state where the employee resides, with most states using the 300-day rule.

At the same time, however, a case could be brought under the older statute allowing all citizens of any color the right to enter into contracts and enforce them, and the court’s ruling asserted that retaliation claims could be filed under this statue.

The decision “puts another arrow in the quiver of the employee,” Mr. Mickey said.

Mr. Adler, however, noted that the court didn’t change anything and that Section 1981 has always been an option.

“A good lawyer would sue under all these statutes,” he said, adding that an attorney would also likely include any state or local laws to the complaint as well.

Although many lawyers would not have filed the Section 1981 claim as well, he said, “they’re more likely to do it now because it’s in their minds” in the wake of the court’s decision.

Mr. Mickey agreed that it is “less common, but not uncommon” for complaints citing both statutes to be filed simultaneously, depending on the circumstances of the case at hand.

From an insurance perspective, an increase in claims filed under the older law could also mean more exposure in terms of severity. Both Mr. Mickey and Mr. Adler noted that while Title VII caps punitive damages, no such caps exist under Section 1981, meaning the court’s ruling “creates a more powerful economic weapon” for plaintiffs, Mr. Mickey said.

However, Mr. Adler argued that employers “should not change how they go about their business” in the wake of the decisions, as it doesn’t make any changes to the law that might make them more vulnerable to a retaliation claim, just the circumstances under which an employee alleging retaliation can file suit.

“It’s a warning for employers to be very careful when dealing with situations where reprisal might be charged,” Mr. Mickey said.

Both Mr. Adler and Mr. Mickey noted that retaliation claims can be problematic for employers, and that fact-finders, be they judge or jury, would naturally make an assumption of causation should an adverse act, such as an unusually bad review, follow a complaint of bias by an employee.

Mr. Adler also noted, however, that since the court only broadened the avenue for plaintiffs somewhat, rather than creating new liability, the ruling’s effect would not be as earth-moving as it has been depicted.

“I don’t think this decision is as significant as the press is making it out to be,” he said. “People could always sue for retaliation.”

Obama Backs National Cat Fund

Democratic presidential candidate Barack Obama offered his support to a proposed national catastrophe fund, provided it does not also encourage risky development.

“I think that we need a national catastrophe fund,” Sen. Obama said in an interview with the Palm Beach Post. “The key is to make sure that it's run efficiently, that it’s adequately funded, and that we build in smart incentives to assure that developers are mitigating risk when they're making decisions on where to locate homes or businesses.”

Sen. Obama referred to legislation passed by the House to implement a national catastrophe fund as a “good start.” The legislation, the Homeowners Defense Act, or HR 3355, is currently awaiting action by the Senate Banking Committee.

He added that there are “a number of ways” to encourage developers to mitigate their risks as much as possible, and that “the key is to make sure you're not setting up a fund where developers don't have to have any regard as to whether they're building in a flood plain or whether they're creating more risky situations.”

The national catastrophe fund is one seen as favorable to Floridians, and the legislation passed by the House was sponsored by two Florida representatives. Sen. Obama compared the situation facing homeowners in the sunshine state to those living in other parts of the country.

“The bottom line for the residents of Florida is they need protection in the same way that people in the Midwest need protection from tornadoes or other natural disasters,” he said. “And I think its important for us to make sure the federal government is playing a role as a backstop in that process.”

Edward Collins, national director of Protectingamerica.org, a group lobby for the national catastrophe fund concept, hailed Sen. Obama’s support for the proposal.

“There is urgency as we are reminded by the recent forecast that major catastrophes are, unfortunately, inevitable,” he said. “Fortunately, however, a growing number of leaders are calling for reforms. Senator Obama rightfully realizes that catastrophe preparation and protection must be a nationwide priority and that action should be taken immediately, before the next catastrophe strikes.”

ProtectingAmerica.org has called for a national catastrophe fund to be established as a backstop for state guaranty pools and funded using mandatory contributions from insurance companies.

Opponents of the concept have argued that the bill would effectively force homeowners in low-risk areas to subsidize those in coastal regions prone to hurricanes and other storms.

During the House debate on the legislation, Rep. Shelley Moore-Capito, R-W.Va., said the bill “could put the taxpayers at risk for bailing out” state insurance pools, pointing to Florida’s state-run Citizens Property Insurance Corp. as an example.

Market Discipline? You’re Kidding, Say Actuaries

While there are differences between the current soft market and previous periods of rate declines, some destructive insurer behavior never seems to change, a group of reinsurance actuaries suggested here.

Listing market pressures for reinsurers that distinguish the current soft market, Elizabeth Mitchell, president, Platinum Underwriters Reinsurance in New York, noted that ceding companies are increasing retentions and that the reinsurance market, while soft, seems harder than the primary market.

That’s “not typical of previous soft markets,” she said, referring to a more typical earlier slide in the discipline of reinsurers.

“Historically, we’ve seen ceding companies use reinsurance more in soft markets, and we aren’t seeing that today,” she added, also noting that reverse phenomenon—in which “ceding companies are perfectly willing to retain more”—has actually accelerated since Jan. 1.

“You’ll hear things like, ‘We’ll keep it net unless you’re willing to pay some really high and egregious ceding commission for the right to write my reinsurance,’ to which many of us are saying, ‘Thank you very kindly, but we’ll pass.’”

The “disconnect” between the reinsurance and primary markets “has gotten so bad that there are still contracts from May 1 that are not placed,” she said. “There is increasing pressure on brokers to get deals done at terms that the reinsurance markets are simply not willing to accept.”

Commenting on conditions in the primary market, she said that since January 1, the ceding companies are more confident that their margins are good, which is leading them to be willing to decrease rates.

“It’s also leading to the phenomenon where they’re starting something new,” she said, referring to ventures into areas of insurance they haven’t written before.

“Everyone argues that they’re going to exercise…discipline, but when you have five or 10 new markets in someone else’s backyard, you cannot help but have extreme competition on rates and terms and conditions,” she said.

Ms. Mitchell said that primary market competition—particularly on large capacity risks on both the property and casualty side, as well as excess and surplus lines risks—has “really started to accelerate.”

Rate drops for these risks were in the mid-to-high single digits through the end of January, but now they’re “hovering around minus-20 percent—and everyone can point out the minus-50 or minus-60 percent risk.”

“In addition, we are just starting to see the softening of terms…something that actuaries struggle with how to reflect, but can nevertheless be much more painful when they slip—and much more effective when they tighten” in terms of how the impact loss costs, she said.

Steve Kelner, managing director, casualty for Swiss Re in Armonk, N.Y., said primary rate levels are now reminiscent of levels at the end of 2001 and early in 2002 for most casualty risks.

“If pricing is at those levels, we’ve got an issue about maybe having inflation on the loss side,” he said, noting that “simple fundamentals” of actuarial work would suggest that pricing should keep pace with inflation.

The cycle “feels like the same cycle but with a different story behind it this time,” he said. “There’s always a new era—a new reason why there’s not irrational behavior,” he said, noting that commentators point to Sarbanes-Oxley (and its impact on reserving practices, perhaps making them more adequate), better systems and better data as factors distinguishing the current cycle.

“I don’t buy it. We’ve got the same cycle. We’ve got the same double-digit rate decreases since the second half of 2004. And each time we’ve gone through the cycle, we understate the impact of rate decreases.”

“We talk about discipline, but I don’t think we actually see discipline to the degree we should yet,” he said, noting that industry forecasters “tend to converge toward means—and to estimate toward a nice staid number” of overall profit.

While there are many public messages suggesting that “that this is a sensible market,” Mr. Kelner said, “I also see a lot of finger pointing,” referring to the conversations he has with primary companies he visits on underwriting audits.

“Our rate change is minus-small number. But when we lose business, it’s minus-big number,” they say, he reported, noting that he challenges them on this because they can’t be winning new business at “minus-small.”

They respond, “Yes, but our underwriting is better,” he said.

Mr. Kelner said, “We had 160 underwriting audits last year, and nobody said their underwriting was worse.”

“Everybody said their rate change is minus-small number. But somebody is writing minus-big number business, and it’s not getting into the rate changes being reported,” he said.

John F. Rathgeber, president and chief executive officer of Arch Reinsurance Company in Morristown, N.J., joined the drumbeat of negative commentary.

“We’re in a pretty bad place right now. Ironically, it’s because good results of the last two years [brought us here]. Capital in the industry is about 80 percent above where it was in year-end 2001,” he noted.

Like Ms. Mitchell, he reviewed the shrinking reinsurance pool, supplying some numbers to underscore the impact of increasing primary company cessions.

Florida Moving More Insureds From Citizens

The Florida Office of Insurance Regulation said today that it has approved the plans of six insurance companies to remove another 100,000 homeowners policies next month from the state’s insurer of last resort.

An announcement from Florida Insurance Commissioner Kevin McCarty said some of the companies already began taking out policies earlier this year from Citizens Property Insurance Corp., and others will begin with the June take-out.

Florida law allows Citizens' policyholders to refuse offers from the private companies and stay in Citizens. All of the take-out companies have agreed to offer the same or better coverage than the policyholder had with Citizens, and at the same or lower price, the OIR said.

"Every company removing these policyholders into the private market has met Florida’s rigorous licensing standards, and most of the newer companies were licensed with double or triple the statutorily required start-up capital of $5 million," Mr. McCarty said in a statement. "We monitor the removal process very carefully to ensure policyholder protection."

OIR said that, to date, it has approved plans to remove up to 500,000 policies in 2008 from the state-created insurance company and place them in the private market.

The six companies that have just been approved to remove Citizens policies are:

• American Integrity Insurance Co. of Florida: up to 75,000 policies total; 42,000 removed to date.
• Argus Fire & Casualty Insurance Co.: up to 18,000 policies total; 12,360 removed to date.
• Avatar Property and Casualty Insurance Co.: up to 10,000 policies total in June.
• Homeowners Choice Property & Casualty Insurance Co.: up to 30,000 policies total; 20,000 removed to date.
• Magnolia Insurance Co.: up to 60,000 policies total in June.
• Southern Oak Insurance Co.: up to 75,000 policies total; 6,678 removed to date.

MGAs Need To Prepare For Hard Market Now

Despite a heavy push for new business by insurers, managing general agents should be prepared to take a pass on questionable risks, an insurance executive said.

That advice came from Chris G. Behymer, vice president marketing for Markel Southwest Underwriters Inc. out of Scottsdale, Ariz., who also counseled that MGAs should ready their staff for the point when rates begin to rise again.

Mr. Behymer made his suggestions yesterday during a lecture here on “Insurance Trends” at the 82nd annual meeting of the American Association of Managing General Agents.

He noted that the driver of the current insurance soft market trend is an enormous amount of capital available to insurers who are looking to employ it sometimes in markets they don’t understand.

Targets for his criticism were the technology market aggregators where, he said, no underwriter is reviewing the risks before issuance of a quote or policy. If the premium is at or below a certain level, some underwriters are not reviewing the risk, he said. This practice, he observed, will only lead to problems later on.

“It will catch up with them,” he said.

The industry, particularly investors pumping capital into the system that do not understand the industry, are helping insurers to grow markets, but not necessarily in an intelligent and productive manner that truly understands risk, said Mr. Behymer.

“We have to do a better job of growing profitably and consistently,” he said.

The industry has had the good luck of not suffering major catastrophes the past two years, but higher values in catastrophe-prone areas could spell a spectacular loss, possibly over $100 billion, should there be a weather-related incident in a vulnerable coastal region, Mr. Behymer cautioned.

There are a number of steps, he said, that the MGA community should take to prepare for the future. Among the suggestions:

• Educate staff to be ready for changes that will come with the next hard market.
• Build strong relationships now with carriers and customers by providing great service and quick turnaround on quotes.
• Improve efficiency and communication with customers.
• Make sure your agent customers know the business they are in or it can prove to be a money losing proposition partnering with them.
• Build and improve technology, but remember that it will only be effective when the previous suggestions have been implemented.

His final piece of advice to the MGAs was, “Know what [business] to walk away from and what makes sense. If you don’t think it makes sense, say it doesn’t and that you’ll take a look at it next time.”

Insurers Told To Monitor Class Action Trends

Shareholder class-action suits are trending upward while settlement amounts appear to be declining, but insurers should keep an eye on where the trends are headed, a broker with Aon advised.

The observations came during a Web seminar titled “The D&O Marketplace: Poised for Change?” sponsored by Chicago-based insurance brokerage Aon.

Steve Shappell, managing director, National Financial Services Group legal and claims with Aon, pointed to a series of statistics that indicate directions in shareholder legal actions that affect directors and officers coverage. He said this area of coverage is “something carriers can’t control and is difficult to predict.”

Historically, the number of shareholder suits has hovered around 200, and in the last couple of years the figure has fallen to less than 100. This year, however, Mr. Shappell said, the trend appears to be returning to historic norms, with 78 suits so far this year, and estimates putting the total for 2008 at somewhere between 200 and 220.

It is “a pretty significant development,” said Mr. Shappell. He credited past years of declines to healthy stock returns and pending legal issues that prevented development of suits. Those broad legal issues, he noted, have since been resolved.

Chief executive officers and chief financial officers remain the primary targets of these suits, with CEOs accounting for more than 90 percent of the litigation, he related. Recently, Aon has found more suits targeting board chairmen, while audit committees still fall far below 10 percent of suits.

After peaking in 2005, severity is showing some downward trends; however, big figure claims still pop up now and then, said Mr. Shappell.

The median settlement figure has risen from $3.7 million in 2006 to around $8.8 million so far this year, but the number of settlements of more than $100 million has decreased since 2005, something he said is “very good news” and that the industry will continue to watch.

One phenomenon that is occurring with more frequency, he said, is that increasing numbers of institutional investors are opting out of class-action settlements and instituting litigation on their own “to pursue a better resolution.”

Timothy W. Burns, an attorney and managing partner with the law firm Heller Ehrman LLP in Madison, Wis., and an Aon shareholder, said several court decisions have raised the bar for proving negligence or wrongdoing in the administration of executive’s decisions.

He said this has led to an increase in the number of shareholder suits dismissed by the courts. He also noted that the failure by the insured to inform insurers in a prompt manner of shareholder suits has resulted in courts upholding denial of coverage.

Jennifer Fahey, managing director, National Financial Services Group, D&O product leader with Aon, discussed coverage issues during the seminar.

A rebroadcast of the seminar is online at www.aon.com/webseminars.

Firms Should Prepare For Future Risk, Lloyd’s Warns

Liability concerns over product recalls and other risks have stifled company innovation and monopolized the focus of boards, leaving them more vulnerable to future liability risks, Lloyd’s warned in a new report.

The report, “Directors in the Dock—is business facing a liability crisis?” released yesterday, said boards are spending about 13 percent of their time dealing with liability risk. It urged businesses to anticipate and prepare for future liability risks.

Lloyd’s said research reveals a growing concern among business leaders about the rise of a U.S.-style compensation culture in Europe and Asia as well as liability fallout from the current instability in the financial markets. It also highlights the future liability issues that boards should be preparing for.

Sean McGovern, director and general counsel at Lloyd’s, told National Underwriter that the report demonstrates the “complexity of the business environment around the world.” He said, “Global business and the increase of regulation are making it more difficult for businesses to manage their liability exposures.”

One message that comes out “loud and clear,” he said, is that “liability issues are constraining businesses in their approach to innovation and risk taking, with a consequence and impact on the prices of their products and services, but also the willingness to engage in providing new products and services, particularly into new countries.”

Mr. McGovern said that a fascinating aspect of the report is that “there seems to be a clear indication at the board level of what they should be doing.” He said boards are aware of their complex operating environment and how they should be managing their risks.

“They need to take time to train their staff and imbed the right kind of risk management culture and use technology to better understand their risks,” he said.

But while boards understand what they should be doing, “there is a yawning gap between what they should be doing and what they are doing in practice,” he explained.

Lord Peter Levene, the chairman of Lloyd’s, commented on the findings in a statement: “Litigation is a leveler of modern businesses. No matter what their size, location or industry, all businesses are facing increasing liability risks. Product recalls are now a daily occurrence, rising 50 percent in Europe alone in the last year. Shareholder activism is on the rise, and a complex operating environment and new legislation serves to increase risks further,” he said.

Lord Levene noted that an increase in litigation and fear of potential liability “is impacting customers through a rise in the cost of products and services and also stifling risk-taking amongst boards who are missing out on new opportunities.”

At Lloyd’s, he said, “we know that taking risks is part and parcel of doing business, but our research shows that there are clear benefits to thinking differently about the liabilities they face and developing the right culture and structure to manage them more effectively.”

Among the report’s key findings:

• Two - thirds of European business leaders expect to spend more time on litigation-related issues over the next three years.
• Thirty-nine percent expect the growing risk of litigation to increase the cost of their produc ts and services and stifle risk- taking over the next three years.
• Over half of all business leaders believe that a U . S . -style compensation culture is spreading in Europe and Asia .
• Two in three business le aders believe the scale of liability claims arising from the credit crunch will exceed those arising from the Dotcom crash.
• Boards most fear future liability issues arising from advances in technology, environmental damage and corporate governance.

The report launches the third series of Lloyd’s 360 Risk project, which aims to generate debate about today’s key risk issues and how best to manage them.

Lloyd’s said its report was written with the Economist Intelligence Unit and included a global survey of more than 180 board-level executives, supplemented by in-depth interviews, to provide a broad business perspective on the issue of liability risk management.

Mr. McGovern told NU that one-third of the survey respondents were in the U.S., a third were in Europe, and the rest were in Asia and other parts of the world.

Allstate Suspended In Florida

A Florida appellate court has lifted a stay and upheld a regulator’s order suspending Allstate from writing new insurance business in the state.

The order was issued by Florida Insurance Commissioner Kevin McCarty when the company balked at a subpoena that sought massive amounts of material concerning Allstate’s ratemaking process and claims handling.

Steve Parton, general counsel of the Florida Office of Insurance Regulation, said late today that Allstate is apparently complying with the request for documents, having supplied more than 100,000 pages of material. But, he said, the suspension will remain in effect until the company certifies that it has supplied all documents and will continue to supply all documents requested by the OIR.

At the same time, Mr. Parton said Allstate is also subject to parallel proceedings now underway dealing with their failure to comply in the past.

Mr. Parton said that an administrative law judge is hearing the case and has the authority to rule that the company failed to comply. If there is such a finding, he said, monetary penalties could be imposed.

Tom Zutell, deputy communications director for the Florida OIR, noted that the state legislature recently passed legislation allowing the state to triple the former level of fines. He said he did not know dollar amounts.

Mr. Zutell also said the suspension is unprecedented for a company of this size.

According to the OIR, Allstate wrote $1.8 billion in auto insurance in 2007, representing 14.8 percent of the Florida market. It is the third largest auto insurer, behind State Farm and GEICO, and insures 1.7 million cars.

As of March 31, Allstate also held 9.2 percent of the Florida homeowner’s market, having written 249,149 policies for $4 billion in premiums.

The suspension ruling affects more than 1,100 captive agencies that write Allstate homeowners’ and auto insurance in the state, according to Jim Fish, executive director of the National Association of Professional Allstate Agents Inc., Gulfport, Miss.

In a conference call, Mr. McCarty said he was aware of the problems being faced by Allstate’s agents. “I am deeply concerned about this and met with them a month ago.”

The commissioner said he told them, “You should talk to Northbrook” and tell them “they should comply with the law,” referring to Allstate’s Illinois headquarters. “Violation of the law is putting their livelihood in peril,” he said.

Amy Moore, a senior communications consultant for Allstate, responded by saying, “We are obviously disappointed with the court’s ruling and are looking at all our options going forward.” These included, she said, seeking State Supreme Court review.

“We just received the court’s opinion and are in the process of reviewing it. We are determining what options we will pursue moving forward," she said.

Allstate said it had supplied the certification of compliance to the OIR, “and are working to resolve any remaining issues.In the interim, it said it has taken steps to comply with the order to stop writing new policies. “We are asking our agents to stop binding new policies,” the statement said. “Systems capabilities will be shut down shortly.”

In its ruling on a motion for rehearing filed by the company, the First District Court of Appeals in Tallahassee said that “on the merits, our opinion remains unchanged.”

In its opinion, written by Judge Paul Hawkes, the court said, “In attempting to conduct its investigation, OIR was faced with Allstate’s representations that it would decide which documents it would produce, and Allstate’s history of incurring millions of dollars in court-ordered fines rather than comply with court-ordered production.”

“The scope of OIR’s investigation cannot be limited by Allstate’s unilateral actions. Suspension of Allstate’s Certificates of Authority was one of OIR’s statutorily available options when Allstate refused to cooperate in the investigation,” the court found.

The appeals court had issued a similar ruling on the case April 22 but swiftly withdrew it, citing procedural rules that an opinion required more time than had passed since Allstate filed its motion.

Mr. McCarty said in a statement that the court had “again affirmed the appropriateness of the office’s action in issuing the January Immediate Final Order suspending Allstate’s licenses to sell new business in Florida; it has denied Allstate’s request for a rehearing and has lifted the stay of the suspension. As a result, the suspension now is back in effect.”

According to the opinion, the suspension applies to Allstate Floridian Insurance Co, Allstate Indemnity Co, Allstate Property & Casualty Insurance Co, Allstate Insurance Co, Allstate Floridian Indemnity Co, Allstate Fire and Casualty Insurance Co, Encompass Insurance Co of America, Encompass Indemnity Co, Encompass Floridian Insurance Co and Encompass Floridian Indemnity Co.

In his comments, Mr. Fish voiced particular concern that Allstate and its agents will suffer a risk to their reputation as a result of the court action.

He specifically cited the court’s conclusion that “Allstate’s willful, indeed potentially criminal failure to comply with its disclosure obligations has prevented OIR from adequately investigating its reasoned belief that Allstate is systematically defrauding its policyholders.”

Mr. Fish said “a lot of innocent people are going to be hurt through this process.”

China Quake Insured Loss Put At $1 Billion

The giant killer earthquake that rocked China caused an insured loss of between $300 million and $1 billion, catastrophe risk modeling firm AIR Worldwide estimated.

The Boston-based firm said uninsured property damage would be about $20 billion. The estimates cover property losses for residential, commercial/industrial and Construction All Risks / Erection All Risks (CAR/EAR) lines of business.

Meanwhile, Eqecat in Oakland, Calif., which has not yet figured insured loss said that economic damage from the quake probably will not exceed $75 billion. Tom Larsen, senior vice president for Eqecat said that estimate was “really rough.”

AIR said there is a high level of uncertainty in insured loss estimates in China where the insurance market is rapidly developing and earthquake coverage is optional for both residential and commercial policies.

The firm said it estimates that insurance take-up rates in the vicinity of the Chengdu region (the percentage of buildings actually insured against the earthquake peril) are minimal for residential properties and only marginally higher for commercial properties.

Although earthquake coverage is mandatory for policies covering construction projects (the CAR/EAR line of business), in many cases companies do not purchase insurance for smaller projects, AIR said.

“Monday’s earthquake occurred along the Longmeng Shan fault in the North-South Seismic belt of Central China,” said Bingming Shen-Tu, China project manager at AIR Worldwide.

“This belt, which runs from Gansu and Nixian provinces in the north to Sichuan and Yuan provinces in the south, is the most seismically active region in China. It also presents the highest risk in China because of the proximity of large concentrations of population. Indeed Sichuan is China's most heavily populated province.”

AIR estimated that the total value of property in Chengdu exceeds $115 billion, of which only a small percent is covered by insurance. Total property value in all counties of Sichuan province affected by yesterday's event is estimated by AIR to be $215 billion.

Mr. Larsen at Eqecat said, “The biggest challenge,” he said, is figuring out what fraction of the damage is insured and what portion of it goes to global markets and what part is retained by Chinese companies.

Mr. Larsen explained that the biggest commercial center to be impacted is Chengdu, the capital city of Sichuan Province, where ground motion was strong to very strong, but damage is expected to be light to moderate.

“We do not expect to find significant collapses. The bulk of the commercial areas are not seeing that. They are seeing modest infrastructure damages,” he said.

However, in Dujiangyan city, 30 miles from Chengdu, 80 percent of the buildings were reported to have collapsed.

Typically the infrastructure problems for Chengdu will involve interruptions of electricity, which can take a few days to a week to repair, Mr. Larsen related.

Most of the worst impact, he said, was in a lightly populated, mountainous area. Damage to older buildings located near the epicenter was very severe, he said, but the impact on economic activity was slight.

Mr. Larsen said companies with the greatest percentage of business interruption insurance would generally be those secured by joint venture capital and would not likely involve more regional kinds of commerce.

He said newer buildings within the impacted area had more engineering review, so Eqecat “would expect a lot less damage.”

The $75 billion economic damage figure, he noted, is a far cry from the $150 billion estimated economic destruction left behind after Hurricane Katrina hit the United States in 2005, and “a very small fraction of that” would be an insurance loss.

Aon Re Global said reports of damage that are coming indicate economic loss from the quake will be significant, but the insured loss is expected to be much smaller as the insurance take-up rate in the region most affected by the earthquake is estimated to be between 2 percent and 5 percent for general property.

However, insurance take-up rates for projects under construction (CAR/EAR risks) is expected to be much higher (RMS 2008) and could contribute to a higher insured loss for insurance companies whose portfolios are heavily weighted toward CAR/EAR risks.

Aon said it is still in the process of modeling the event and expects to eventually have initial estimates of industrywide losses and client losses.

Insurance Information Institute said the quake in the southwestern region of China yesterday registered a 7.9 on the Richter magnitude scale, stronger than the 7.5 magnitude quake which struck the country in July 1976, killing tens of thousands of people.

Workers’ Prescription Drug Utilization Fell In ‘06

The National Council on Compensation Insurance actuaries said yesterday that their 2007 study of prescription drug use to treat injured workers unexpectedly found that utilization of such medications fell for the second year in a row.

“A big surprise,” said NCCI Senior Actuary Barry Lipton, speaking at a session of the NCCI’s annual issues symposium here.

Increased utilization, Mr. Lipton explained, involves increased amounts of medication or more expensive drugs.

In addition to a reduction in utilization, Mr. Lipton said there was a drop by five points in the cost share of expensive name brand anti-inflammatory and analgesic drugs over the past two years.

According to the findings, anti-inflammatory drugs that were 25 percent of total medical costs in 2003 have seen their share of costs drop by 10 percentage points. He reported that use of less costly generic drugs in 2006 was 90 percent, up slightly from the previous year.

Mr. Lipton said the sudden drop in utilization is “like screeching on the brakes,” and he suggested that more positive cost trends for comp insurance could be in the offing if more generic drugs are developed to replace “blockbuster” name brand prescriptions.

He went on to say that if “there aren’t new designer drugs coming out, sooner or later there will be a generic for everything.”

The NCCI study listed the top 10 drugs used for workers’ comp treatment in 2006, in order, as:

• Hydrocodone/Acetaminophen
• Lidoderm
• Gabapentin
• Celebrex
• Oxycondone HCL
• Carisoprodol
• Actiq
• Skelaxin
• Oxycontin
• Naproxen

One drug, Actiq, Mr. Lipton described as a “hugely expensive” narcotic normally used to treat end stage cancer. He suggested that comp insurers should challenge its use, saying “someone needs to push back when there are signs of abuse.”

He noted that while the pain killer Oxycontin had dropped from third place to ninth in 2006, it was actually in first place if the share of the similar generic Oxycondone was factored in.

Use of the name brand anti-inflammatory Mobic fell, while use of Lyrica shot up, the study found.

Harry Shuford, the NCCI’s chief economist, reported on a study of the increasingly larger share medical plays in the cost of total workers’ comp benefits. Among the factors mentioned was the finding that medical prices were rising faster than the rise in average weekly pay, which makes up the indemnity portion of comp payments.

The NCCI study, he said, found that the reasons for higher medical costs were hard to pin down. “It’s not just [increased] surgery; it’s a complicated problem.” The one certain cost driver, he said, is that “doctors are delivering a lot more services.”

Economic Downturn Mixed News For WC Insurers

The depressed economy has good news and bad news for workers’ compensation insurers, the chief executive officer of the National Council on Compensation Insurance said today at the group’s annual seminar here.

The good word is there will be fewer and less costly injuries, but the bad news is there will be fewer premiums written, said Steve Klingel, NCCI president and CEO.

Mr. Klingel, basing his remarks on data from previous recessions, said insurers’ premiums will be affected by smaller payrolls with less workers to insure. The greatest impact will be felt by insurers whose business comes from the more affected sectors of the economy.

The hardest hit sectors, he said, will be the manufacturing and construction sectors. Mr. Klingel said that as construction slows, comp insurers will see less hurt workers from an industry that generally tallies more severe and costly injuries.

There will also be a drop in injury frequency caused by the fact that fewer inexperienced workers will be arriving on the job, said Mr. Klingel.

In addition to the economy, he said workers’ comp insurers will continue to be challenged by rising treatment costs for injured workers. The main cost driver of medical, said Mr. Klingel, is the soaring amount of additional services or utilization. He said these costs from medical providers increased when action was taken to implement restrictions on fees.

The fee schedules NCCI has found that work best to restrict costs are those that are closest to Medicare, he said. But utilization “needs work” and is a main cost driver of the comp system, he said.

To get utilization costs in hand, Mr. Klingel said comp insurers are looking at pay-for-performance arrangements based on outcomes and patient satisfaction.

The NCCI executive said that in order to help state comp systems get a better handle on treatment costs for injured workers, NCCI has embarked on a new medical data call to gather information. He said the effort is a multiyear, highly detailed process.

Sen. Rejects Adding Wind Coverage To NFIP

In a victory for the insurance industry, the U.S. Senate Wednesday night soundly rejected efforts by coastal senators to add wind coverage to the National Flood Insurance Program.

The Senate voted, 73-19, against the wind provision, despite exhortations by senators from Mississippi, Louisiana and Florida about the importance of making homeowner’s insurance coverage available and affordable to coastal residents in the wake of Hurricanes Katrina and Rita.

Such a provision is included in the House version of the bill, but a Government Accountability Office report and a message to the Senate by advisers to President Bush this week recommending a veto of the bill if it contained such a provision apparently weighed heavily on the final vote.

The insurance industry, joined by consumer and environmental groups, lobbied heavily against adding such coverage to the program.

Ben McKay, senior vice president, federal government relations, of the Property Casualty Insurers Association of America., said he believes the vote will help clear the way for final action on the renewal and reform bill before the program’s authorization runs out Sept. 30.

“The Senate's vote should be the death knell for the wind amendment,” Mr. McKay said, adding that Rep. [Barney] Frank, D-Mass., chairman of the House Financial Services Committee, “said last year that he would not insist on keeping the windstorm provision if it would kill the overall flood bill.”

With the Senate's rejection of that provision, Mr. McKay said, “the White House's stated intention on vetoing a bill that contains it, and the recent GAO report showing onerous costs to taxpayers if it is included, it is clear that the wind language would ultimately kill the flood bill.”

Now, he said, “the House can focus on the viable provisions of this legislation.”

The bill would reauthorize the insurance program while phasing out below-market rates for second homes, increase annual deductibles, and erase more than $17 billion in debt accumulated as a result of Hurricane Katrina.

The program must be reauthorized because it expires at the end of the current government fiscal year, Sept. 30.

Work on the bill will continue Thursday, but a final vote will be delayed until next week, after debate Monday on two nonrelated amendments dealing with energy issues.

“We've had good cooperation on both sides. What we're going to try to do is finish this bill,” Senate Majority Leader Harry Reid, D-Nev., said.

A key vote Thursday will be on an amendment by Sen. Landrieu that would create an inspector general within the parent agency of the program to ensure that insurers don’t inappropriately push wind liabilities to the NFIP. "I don't know why the [original] bill drafted in the Senate Banking] Committee didn't come down harder on this," Ms. Landrieu said.

P-C Composite Rate Down 12% In April: MarketScout

The composite rate for all lines of U.S. property-casualty business is down 12 percent for April, MarketScout the electronic insurance exchange reported.

The 12 percent overall decline for April is the same as the reported decline for March, and two percentage points less than the 14 percent drop reported for February.

Richard Kerr, founder and chief executive officer of the Dallas-based concern said in a statement that admitted insurers “continue to carve market share from the surplus lines insurers by assuming risks which had been traditionally placed in the non-admitted market. Vanilla accounts are coveted by everyone so they also go to the admitted market, but at extremely competitive rates."

By coverage class, general liability insurance was reported as leading the declines at minus 15 percent. Small accounts declined by 14 percent versus 12 percent the month before, while jumbo accounts actually increased in price moving from a overall decline of 13 percent to a decline of 11 percent.

Service contractors, MarketScout said, are very competitively priced at minus 15 percent.

MarketScout’s 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.

The declines in rates for April 2008 broken down by coverage class:
• Commercial property, 14 percent
• Business interruption, 11 percent
• Inland marine, 10 percent
• General liability, 15 percent
• Umbrella/excess, 12 percent
• Commercial auto, 9 percent
• Workers’ compensation 8 percent
• Professional liability, 7 percent
• Directors and officers liability, 6 percent
• Employment practices liability, 12 percent
• Fiduciary, 7 percent
• Crime, 8 percent
• Surety, 7 percent

By account size, the declines were:
• Small accounts up to $25,000, 14 percent
• Medium accounts, $25,001 to $250,000, 12 percent
• Large accounts, $250,000 to $1 million, down 12 percent
• Jumbo accounts over $1 million, 11 percent.

By industry class, rate declines were:
• Manufacturing, 12 percent
• Contracting, 12 percent
• Service, 15 percent
• Habitational, 12 percent
• Public entity, 13 percent
• Transportation, 11 percent
• Energy, 11 percent

MarketScout’s barometer findings are supported by surveys conducted by The National Alliance for Insurance Education and Research during CIC and CRM institutes held across the United States in April 2008.

MarketScout underwrites and distributes hundreds of product lines to a 60,000-member agency network across the United States.

Fla. Legislature Passes Insurance Bill

Legislation designed to improve the homeowners market in Florida and opposed by the insurance industry is heading to the desk of Gov. Charlie Crist after winning approval in the state legislature.

Among changes made by the House in passing the bill is removal of language that would have eliminated the limited anti-trust exemption for insurers in the state.

The House amended the bill, known as Senate Bill 2860, and passed it late Wednesday night. The Senate followed suit late Thursday afternoon.

Besides removing the anti-trust language, the legislation would mandate that commercial insurers looking to non-renew more than 10,000 policies in a given year would have to notify the state Office of Insurance Regulation at least 90 days prior to doing so, but would not be required to stagger the non-renewals as was mandated in the original Senate version.

Another major change in the bill involves the setting of harsher fees for violation of state insurance code or laws. The version passed by both the House and the Senate doubles the current fines for both willful and non-willful violations, where the original Senate version created much higher penalties.

State insurance commissioner Kevin McCarty praised the state lawmakers for keeping provisions that enhance his office’s authority.

“I am pleased that some significant consumer safeguards have been maintained in the House version,” of the bill, he said, mentioning specifically the provisions requiring insurers to obtain state approval prior to implementing a rate increase.

For policyholders, the legislation will extend a rate freeze for the state-run Citizens Property Insurance Corp. for a year, and insurers would also be required to pay undisputed claims within 90 days under the bill.

The legislation also includes a provision to shore up 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, to be taken from Citizens, but requires companies seeking the loans to use a percentage of their capital to take policies out of the state-run insurer’s book.

While many of the provisions of the original Senate bill were softened in the House, insurance industry groups continue to express concern over the final bill.

“While the bill passed by the House is somewhat less punitive toward the insurance industry than the original legislation, it will not lead to a better insurance marketplace for consumers,” said Liz Reynolds, Southeast state affairs manager for the National Association of Mutual Insurance Companies. “In all likelihood, the result will be fewer choices of insurers.”

David Sampson, president of the Property Casualty Insurers Association of America, echoed that sentiment, arguing that even under the legislation, the state would be facing significant liability in the aftermath of a major hurricane.

“Whatever post-storm costs that the state cannot collect in bond revenue, the taxpayers will be on the hook for through assessments on their property and auto insurance bills,” he said. “We increase the chances that the next hurricane will devastate the state’s economy for generations if we ignore risk, drive private insurers out of the state, and place more of the potential costs from a major storm on the backs (and wallets) of Florida consumers.”

HSA Enrollment Up 35% In Last Year

Health Savings Account enrollment grew 35% to 6.1 million between January 2007 and the present, according to a survey commissioned by America’s Health Insurance Plans.

At the same time, the chairmen of two House committees charged that the data from a Government Accountability Office study shows that HSAs are nothing more than tax shelters that benefit the wealthy.

The GAO report also noted that, despite their growth, HSAs only represented about 2% of individuals with private health coverage in 2006, the last year for which information was available.

Among tax filers between the ages of 19 and 64, the average adjusted gross income for filers reporting HSA activity was about $139,000 compared with about $57,000 for all other filers. Similar income differences existed across all age groups.

The GAO report said that the total value of all HSA contributions reported to IRS in 2005 was about twice that of withdrawals—$754 million compared with $366 million.

Among all filers reporting HSA activity in 2005, average contributions were about $2,100, compared to average withdrawals of about $1,000, the report said.

Despite the growth in HSA participation, nationally representative survey estimates from 2005, 2006 and 2007 found that more than 40% of HSA-eligible health plan enrollees did not open an HSA, the GAO report said.

Industry officials said they were quite satisfied with the report.

“Employers and individuals across the country and across the age spectrum are choosing HSA plans, which are now an important part of the portfolio of coverage options offered by health plans,” said Karen Ignagni, president and CEO of AHIP.

Janet Trautwein, executive vice president and CEO of the National Association of the National Association of Health Underwriters, said the new enrollment and coverage statistics “illustrate that HSAs continue to be a dynamic, consumer-friendly and increasingly popular health insurance option.”

But Rep. Henry Waxman, D-Cal., chairman of the House Oversight and Government Reform Committee, and Rep. Pete Stark, D-Cal., chairman of the Health Subcommittee of the Ways and Means Committee, said the GAO report shows that “instead of being used by low and middle-income Americans most likely to be without health insurance, HSAs are increasingly a popular tax shelter option for wealthy taxpayers.”

The report confirms that “HSAs are not the way to meet the health care needs of most Americans,” Stark said. “Instead, they are an effective tax shelter for people whose average incomes are nearly triple that of average tax filers.”

Big Losses Don’t Always Prompt RM Action, Study Finds

More than half of U.S. businesses sustained a harmful high impact loss event they thought was unlikely to occur last year, still nearly half took no risk management steps to prevent a reoccurrence, according to a survey.

The study, “Excellence in Risk Management Study,” conducted by the Risk and Insurance Management Society and Marsh, listed major natural disasters, subprime market issues, and product recalls as examples of high impact/low impact events that have hit companies.

According to results released at the RIMS conference here, 57 percent of firms surveyed were impacted by such an event, which might also include a terrorist threat, significant loss of brand or significant internal fraud, in the last 12 months.

Of the firms that were affected, about 53 percent modified their policies and practices. “So quite a few did, but quite a few didn’t,” said Pamela G. Rogers, senior vice president, risk consulting practice with Marsh

Strategic firms that use enterprise risk management approaches, were found more likely to report a high impact/low probability event and were more likely to modify practices as a result, the survey found.

Ms. Rogers said, “While many of the firms took action after being impacted, we saw some firms, more on the traditional side, that really did not take action, even after being impacted by one of these risks.”

Traditional firms are those that use only the basic risk management tools of risk identification, loss control, claims analysis and insurance.

Highlighting the difference between the reactions of “traditional” and “strategic” firms, the study reported that if there was a significant loss in brand image, for example, only 44 percent of the traditional firms that had a significant loss actually modified their practices. Of strategic firms that had a significant loss in brand image, 100 percent modified their practices and were more proactive.

The investigation of high impact/low frequency events is a new area of investigation in the fifth annual study released by Marsh in collaboration with RIMS. Another new area of the report this year looks at supply chain risk management.

Ms. Rogers reported that just over half of the respondents—51 percent—said they did not have an end-to-end supply chain risk management process in place.

She clarified that while this number may seem high, because the question posed referred to an “end-to-end” process, even risk managers with 90 percent of their supply chain process in place would not be able to respond with a “yes” to the survey.

Next year, the survey will try to determine how far along they are with their process, she said.

Of more interest, however, was the percentage of risk managers—23 percent—who do not believe they have a supply chain risk, she said.

Those risk managers may believe that because they are not involved in a manufacturing process, they are not vulnerable. In fact, she said, nearly every business has a supply chain of some kind.

Of those surveyed, 26 said they have a risk management process in place for supply chain, leaving 51 percent with no risk management process.

Companies that have a risk management process for supply chain have an average of 5,241 employees, average revenues of $3.8 billion and 66 percent have international operations.

Companies with no risk management process for their supply chain process have an average of 4,338 employees, average revenues of $2.6 billion and 58 percent have international operations.

Those companies who believe a supply chain does not apply to the firm averaged 3,915 employees, had average revenues of $2.5 billion and 40 percent international operations, the survey found.

According to the study, supply chain includes all processes in “making, moving, storing and servicing physical goods from your suppliers’ suppliers through the end customer.”

It also comprises internal processes and external activities “performed on your behalf by suppliers, logistics partners, transportation carriers, distributors, co-packers, service and repair organizations” and workflow/process risk.

Even in “a service firm like Marsh, there is a supply chain,” said Ms. Rogers. “Sometimes we think of only manufacturing having that, so I think there’s an opportunity here. This is an area where we see we have a gap.”

ACE Net Income Off 46%; Beats Analyst’s Estimates

Hamilton , Bermuda-based insurer ACE Limited reported first-quarter net income fell 46 percent primarily on investment losses, but the company beat analyst’s earning estimates by 24 cents a share on net realized gains.

For the first quarter of this year, ACE reported net income was down $324 million to $377 million, or a $1 a share drop of net income to $1.10 a share.

However, income excluding net realized gains, which the company said reflects the true nature of the performance of its insurance business, rose 18 cents to $2.16 a share. Net premiums written were off 4 percent, or $116 million, to $3.15 billion.

The company’s positive performance in insurance was also reflected in its combined ratio that improved 2.5 points to 84.6 in the quarter compared to the same period last year.

David Small, an analyst for Bear Stearns, said in a note the loss ratio is better than expected, unlike other companies, and this is a testament to the company’s diversification by geography and line of business.

During an analyst’s conference call today, Evan Greenberg, chairman and chief executive officer of ACE, said the first-quarter results “were quite strong given the volatility of financial market conditions.”

Phillip V. Bancroft, ACE chief financial officer, said the $650 million net realized and unrealized loss after taxes was the result of “unprecedented financial market volatility in the credit and equity markets.”

The insurance marketplace rates continue falling, said Mr. Greenberg, with first-quarter results seeing more accelerated rate declines than in January. Declines in the United States averaged in the single percentage digits on retail business and low teens on the wholesale business, he said.

He said while the industry will see an impact to earnings from rate declines, increased risk exposure and market volatility, a greater concern is inflation.

“The continued and involving impact of the financial markets turmoil will be with us for some time, and will continue to be a drag on the global economy,” Mr. Greenberg said. “In my judgment, though, inflation is the more long-term and insidious risk that faces our industry. We have been in a benign inflationary period and I believe this is likely coming to an end.”

He said despite these threats, rates continue to drop because of capital investment. ACE will continue its strategy of holding onto renewals and writing less new business, Mr. Greenberg added. The company will seek growth where it sees adequate return and curtail or eliminate business in other areas.

“I hear many of our competitors make similar comments, but time will tell who is and who is not practicing what they preach,” Mr. Greenberg remarked.

ACE International business reflected growth, while domestic business in the United Kingdom and Australia were down, he said.

Internationally, property-casualty and accident and health grew, but international wholesale “shrank modestly,” he continued. Premium in North America was down primarily in workers’ compensation exposures and professional lines. Specialty and general p-c lines saw growth, particularly in middle market areas, he added.

The company also announced it plans to change its domicile from the Cayman Islands to Zurich, Switzerland, and said it has completed its acquisition of Combined Insurance Company from Aon and the Atlantic Companies’ personal lines business.