U.S. Senate Panel Rejects Public Healthcare Option; More Votes Ahead

A U.S. Senate panel Tuesday rejected a government-run "public" insurance option as part of a broad healthcare overhaul, handing insurers an early victory and setting the stage for a long fight over one of the bill's most contentious issues.

The two votes in the Senate Finance Committee were the first of several battles expected in Congress over a public insurance option, a flashpoint in the raging debate over President Barack Obama's top domestic priority.

The panel's Democratic chairman, Max Baucus, opposed both amendments and said Democrats could not muster the 60 Senate votes needed to clear Republican procedural hurdles and pass a healthcare reform bill if it includes the public option.

"I can count," Baucus said. "No one has been able to show me how they can count up to 60 votes with a public option in the bill."

Supporters of the option disagreed and said they would have more success when the issue is taken up in the full Senate and in the House, where Speaker Nancy Pelosi has vowed it will be in a final bill.

"The more the American people hear about the public option, the more they like it," said Democratic Senator Charles Schumer, sponsor of one of the amendments. "We're going to keep at this ... until we succeed."

The Senate Finance proposal by Baucus is the only one among several healthcare reform bills pending in Congress that does not have a public insurance plan, which Obama and other backers say would boost competition for insurers.

Republican critics say the public option would devastate the private insurance industry, which has strongly opposed the measure, and ultimately lead to a government takeover of the sector.

Democratic Senator John Rockefeller, who offered the other amendment to insert a public option, said the approach would give the public more choices and force the insurance industry to compete.

"Who comes first, the insurance companies or the American people?" he asked.

Senator Charles Grassley, the senior Republican on the panel, said the public option would represent a first step toward the eventual goal of Democrats -- a complete government-run health insurance system.

'DRIVE INSURERS OUT OF BUSINESS'

"A government-run plan will ultimately drive private insurers out of business," Grassley said. "If you support government bureaucrats, not doctors, making decisions, you should support this amendment."

Obama supports a public option but has signaled it is not essential to a final bill as long as there is a way to boost choices for consumers and create competition for insurers.

Five Democrats joined panel Republicans to oppose Rockefeller's amendment, 15-8. The second amendment, by Schumer, failed 13-10 with three Democrats opposed -- Baucus, Kent Conrad and Blanche Lincoln.

Democrats, who have 60 votes in the 100-member Senate, have not been successful in attracting Republican support, leaving them vulnerable to party defections on a Senate healthcare vote. But so far no Democrats have said they would vote to support Republican procedural tactics to block the bill.

The panel's votes came as it opened its second week of debate on an overhaul of the $2.5 trillion healthcare system.

The panel is expected to finish by early next week and send the bill to the full Senate, where Democratic Leader Harry Reid will merge it with one passed by the Senate Health committee.

The $900 billion Baucus bill is designed to control costs, regulate insurers and expand coverage to more of the 46 million uninsured people living in the United States.

The proposal would create state-based exchanges where individuals and small businesses could shop for insurance, but would not offer a government-run plan as an option.

As an alternative, the committee's bill would create nonprofit insurance cooperatives to create competition. Rockefeller and other public option backers say cooperatives are unproven and would not offer enough competition.

Conrad, the prime proponent of cooperatives, said there were plenty of innovative models using non-profit approaches that have been tried around the world.

"We've gotten locked in a really sterile debate that says the only alternatives are what we've got now or a public option," Conrad said.

Rockefeller's amendment would have tied reimbursement rates for healthcare providers to the lower rates under Medicare, the health insurance plan for the elderly, for two years.

If that happens, Conrad, who is from North Dakota, said, "every major hospital in my state goes broke."

Schumer's amendment would have required the plan to negotiate with providers as private insurers do.

Rockefeller and Schumer said they had expected the issue to lose in the more conservative Senate panel but just wanted to kick off debate to allow momentum to build. Republicans were skeptical.

"If it's so popular, why are there so many Democrats who have a problem with it?" Republican Senator John Ensign asked of the public option.

Florida Workers' Compensation Guaranty Fund Elects Directors

The Florida Workers' Compensation Insurance Guaranty Association announces its newly elected / re-elected board of directors. Terms begin Oct. 1, 2009 and run through Sept. 30, 2013.

Heading the FWCIGA board is Tom Stahl who has served as cairman of the board since 1999. He serves as the executive director of the Florida United Businesses Association (FUBA), a nonprofit trade association for small businesses.

Stahl is a partner in the law firm of Phillips & Stahl, LLC, a private firm in Tallahassee. He serves as the co-administrator for LUBA Casualty, a stock insurance company that is the second largest writer of workers' compensation insurance in the Louisiana.

Other elected FWCIGA board members are:

David Conway, vice president of finance and chief financial officer of Summit Consulting, Inc., brings to FWCIGA more than 32 years of insurance accounting and management experience.

James Costa (re-elected) has served on the FWCIGA board for the last four years. He is the regional underwriting director for the Southeast in Select Accounts with Travelers. His work covers seven states, including Florida, Georgia and North Carolina. Costa's background includes positions at Hartford Insurance Group, CNA, and Kemper.

Craig Johnson is executive vice president, chief financial officer and treasurer of FCCI Insurance Group. He oversees all FCCI financial, investing, treasury, reinsurance placement. Before joining FCCI, Johnson was with American Skyline Insurance Co.

Richard Palczynski (re-elected) is the founder and principal of SeaTower Consulting. Most recently he was with Towers Perrin Reinsurance, having joined that organization in 2004. Palczynski retired in 2003 from The Hartford Financial Services Group. His career spans 28 years with the Travelers Property Casualty Corp.

Brett Stiegel (re-elected) is the administrator and CEO of the Florida Roofing, Sheet Metal and Air Conditioning Contractors Self Insurers Fund. He has been with the association for more than 22 years. Stiegel has served as a board member on the Florida Bureau of Fraud Task Force for more than 15 years. In addition, he is a member of the board of governors of the Florida Workers' Compensation Joint Underwriting Association.

FWCIGA is the statutorily created guaranty association responsible for the administration of workers' compensation benefit payments incurred by insolvent insurance companies and group self-insurance funds operating in the Florida.

FWCIGA is a member of the National Conference of Insurance Guaranty Funds.

P&C Industry First-Half Net Drops More Than 50%

Property and casualty insurance industry first-half net income fell 59.3 percent, reflecting weakness in the economy and losses in investment income, according to an industry report released today.

The Jersey City, N.J.-based Insurance Services Office and the Property Casualty Insurers Association of America released the second-quarter report on industry results that says net income for the first six months of the year dropped from $14.1 billion in the first half of 2008 to $5.8 billion for the first six months of this year.

The main driver of these results was a more than 50 percent drop in insurers’ investment gains that fell to $12.4 billion this year from $24.9 billion for the same period last year.

Offsetting the deterioration in results was the improvement in net losses on underwriting that stood at $5.6 billion for the first six months of 2008 to $2.2 billion for the first half of 2009.

The numbers are consolidated estimates for all p&c insurers based on reports accounting for at least 96 percent of all business written by private U.S. p&c insurers, the report said.

Michael R. Murray, ISO’s assistant vice president for financial analysis, said in a statement that “2009 is the second-lowest first-half rate of return since the start of ISO’s quarterly data in 1986 and 7 percentage points less than the 9.5 percent average first-half rate of return for the past 24 years.

Mortgage and financial guaranty insurers faired particularly poorly with annualized rate of return falling to negative 77 percent from negative 67 percent last year.

Excluding these two segments, the insurance industry’s annualized rate of return declined to 5 percent for the first half of 2009 from 8 percent last year, he said.

Policyholder’s surplus (insurers’ net worth measured according to statutory accounting principles) rose 1.2 percent to $463 billion as of June 30, from $457.3 billion at year-end 2008.

David Sampson, PCI president and chief executive officer, said that despite the economy “the insurance industry remained profitable and policyholders surplus increased.”

“Property and casualty insurers continued to be healthy and competitive despite an extraordinarily difficult operating environment complicated by the worst recession in decades and the lingering effects of an unprecedented financial crisis that brought down many once iconic banks and Wall Street institutions,” he added.

The report noted that net written premiums dropped $9.4 billion, or 4 percent, to $213 billion for the first half of 2009. Net earned premiums declined $6 billion, or 3 percent, to $211 billion.

Insurance Information Institute President Robert P. Hartwig noted in a separate commentary, “The results provide the first evidence of a rebound in profitability for property and casualty insurers in the wake of the financial crisis that began in mid-2007.”

He noted that reduction in realized capital losses contributed greatly to pull results back into positive territory. Secondary factors included improved underwriting conditions, with the combined ratio for the second quarter falling to 99.5 from 100.9 in the first quarter of this year.

This compares with a 2008 second-quarter combined ratio of 104.1 and 102 for the first quarter of that same year, Mr. Hartwig noted.

He said the increase in policyholders surplus is also another sign of recovery, calling the reversal “notable and important.”

Mr. Hartwig went on to say that while U.S. Federal Reserve Chairman Ben Bernanke recently declared the recession technically over, it “does not portend a period of unbridled growth and prosperity.”

The wounds from this recession, he remarked, are deep and in some cases permanent, and new growth will come after “a slow and fitful recovery.” He said it will take two to three years to replace the exposure that was lost since the recession began in mid-2007.

Insurance Execs Not Confident of Underwriting Profit Over Next 3 Years

Insurance executives see their companies performing above general market expectations in 2010, but their outlook on the industry's ability to generate underwriting profit in the next one to three years remains restrained.

That's according to an annual survey conducted by KPMG, the audit, tax and advisory firm.

At KPMG's 21st annual Insurance Industry Conference, nearly half (48 percent) of the 271 executives surveyed expect their company to perform ahead of expectations in the year ahead. This represents a much more bullish outlook than the results of KPMG's 2008 survey, when only 22 percent saw performance being better than expected.

Another 36 percent of this year's attendees thought their companies would perform at a level similar to 2009; just 16 percent said they see company performance being below expectations.

Despite the optimism around their company's performance, executives continue to indicate that underwriting profit may be elusive in the next three years. In fact, 64 percent see only a moderate ability to increase underwriting profit, while more than a quarter (27 percent) characterized the chance of increased profit as "weak."

"The period of the past 18-24 months has been very challenging for many insurers in terms of financial performance," said Scott Marcello, partner, Insurance Industry Leader at KPMG LLP. "While our survey shows some optimism related to future performance, executives have clearly indicated that the industry still faces many risks and the uncertain economic and regulatory environment poses many obstacles to growth and recovery."

Barriers and Challenges

The executives most frequently cited continued unemployment rates and increasing regulatory intervention as barriers to economic recovery.

While nearly a third (31 percent) indicate they don't anticipate their company will need to access additional capital over the next 18 months, the scarcity and high cost of capital was cited as the third largest barrier to overall economic recovery. In the event their company did decide to access additional capital over the next 18 months, 22 percent said the most likely source would be equity while 17 percent said it would be debt.

Despite the challenges surrounding access to capital, 73 percent of executives say they expect an increase in mergers and acquisitions when compared to the last 12 months.

Asked to identify the most significant challenges they face in the next three to five years, 30 percent cited the risk associated with adequately pricing insurance products (referred to as pricing risk) to be the most significant challenge over the next three to five years, followed closely by credit risk, identified by 23 percent of the respondents.

"As expected, there are clear concerns surrounding access to capital and the proposed regulatory changes," added Marcello. "However, there appears to be a multitude of opinions on exactly what the best regulatory solution might be for the industry."

Financial Regulations

Asked about their organization's view around the ongoing debate of financial regulation, executives offered mixed opinions as to the best plan. Twenty-eight percent support an optional change to a federal regulator, 25 percent opt to maintain the current state regulatory system but say some increase in regulation will be necessary, and 17 percent support a mandatory change to a federal insurance regulator. Twenty-five percent do not support any change, and say increased regulation is not needed in the insurance industry.

Other key findings:

• Product innovation (17%), customer focus (15%) and redeploying capital (14%) seen as most important for fueling future growth.
  
• 45 percent of execs say their company has made changes to both their risk management processes and their risk appetite as a result of the global financial crisis.

AAA Survey: 1 Out of 5 Drivers Admits to Texting

Nearly one out of five U.S. drivers surveyed has read or sent a text message while behind the wheel, even though nearly all of the respondents in an AAA survey released on Friday considered such action unacceptable.

"The new technologies that help us multitask in our everyday lives and increasingly popular social media sites present a hard-to-resist challenge to the typically safe driver," AAA Chief Executive Robert Darbelnet said in a statement accompanying the survey commissioned by the AAA Foundation.

"Enacting texting bans for drivers in all 50 states can halt the spread of this dangerous practice among motorists nationwide, and is a key legislative priority for AAA in state capitals," Darbelnet said.

The group, which provides emergency road services to its members and lobbies on automobile issues, formerly was known as the American Automobile Association.

The random telephone survey questioned 2,500 U.S. residents 16 and older in April and May.

Although nearly all respondents considered the practice unacceptable, 18 percent said they had sent a text messag while driving within a month of being surveyed.

Most data available on texting and driving are anecdotal, but the U.S. Transportation Department is seeking more information as pressure grows to ban the practice.

Transportation Secretary Ray LaHood will hold a two-day conference on distracted drivers next week in Washington.

Separately on Friday, 93 percent of 1,000 licensed drivers responding to a survey commissioned by Ford Motor Co. supported a nationwide ban on texting while behind the wheel.

AAA says surveys of its members also favor a ban, a step that Ford and other major automakers support.

About a dozen states have imposed prohibitions, and proposals for a national ban have been introduced in Congress.

The wireless industry -- including cellphone manufacturers, carriers, and some Internet companies represented by the CTIA-Wireless Association -- support state and local efforts to ban texting while driving.

Insurers Irked As NAIC Mulls Possible Cat Model Program

NATIONAL HARBOR, MD.—Insurance industry representatives are raising concerns about possible plans by the National Association of Insurance Commissioners to develop its own natural catastrophe models.

The representatives who are here attending the NAIC Fall 2009 meeting questioned the closed-door nature of the NAIC’s discussions on the plan, as well as the costs and the purpose when private sector companies already produce catastrophe models of their own.

Eric Goldberg, associate general counsel and manager, state programs for the American Insurance Association, said there has been a lack of process in the NAIC’s decision-making. He said there have been no open discussions, and the plan was mentioned for the first time only in passing at the NAIC’s Summer 2008 meeting. Since the insurance industry would provide funding for such an undertaking, he asked the NAIC to be more open with its plans.

He said rumors indicate that costs for the project could be $12-to-$15 million, spread over two years, to develop the models, and millions more to maintain them—all to replicate what private modelers already provide.

While he said the NAIC has cited increased use of proprietary models by the industry as a cause for concern, he added that modelers have been willing to share their proprietary models with regulators and educate them on how the models are used.

Deidre Manna, vice president, industry, regulatory and political affairs for the Property Casualty Insurers Association of America (PCI), asked the NAIC to be more transparent in its discussions. She said she is concerned there will be few, if any discussions with the industry, followed by a multimillion-dollar line item in the NAIC’s budget for the project.

Iowa Commissioner and Industry Liaison Chair Susan Voss said regulators are simply trying to be thoughtful in how they approach catastrophes. She said there have been no concrete decisions made yet regarding whether the NAIC will move forward with developing cat models, and added the NAIC is not prepared to unveil any plans at this moment.

She said the NAIC does not want to compete with private modelers but rather wants to see if it can enhance what regulators already do for consumers.

She noted there will be nothing in the budget for 2010 regarding this project, and said it remains to be seen whether the plan will be realized at all.

Health Care

Also discussed at the Industry Liaison meeting, Dave Snyder, AIA vice president and associate general counsel, raised concerns with an amendment proposed by U.S. Senator Jay Rockefeller, D-W.Va., to the health care bill developed by Senator Max Baucus, D-Mont. Under the amendment, Mr. Snyder said, all medical coverage payments would be moved from auto and workers’ compensation companies to health care companies.

Mr. Snyder said this would be pooling systems that work well into a system that is under stress, and added the plan “makes absolutely no sense.”

He also said such a plan would alter the risk-based pricing in auto insurance that benefits insurers and consumers alike.

Mr. Snyder called on regulators to oppose the proposal.

Yogurt Firm Settles Lawsuit, Agrees to Pay $35M

New York-based yogurt company The Dannon Co. said it will reimburse consumers for up to $100 of Activia and DanActive yogurt purchases and change its marketing and labeling to settle a class-action lawsuit.

The lawsuit, filed in 2008, alleges Dannon overstated the yogurt's health benefits. The company claims the products can strengthen the body's defenses or regulate digestion because of bacteria they contain.

White Plains, New York-based Dannon, a unit of France's Danone, denies any wrongdoing and said it settled the suit to avoid any further litigation and expense.

The settlement still needs to be approved by the U.S. District Court for the Northern District of Ohio.

As part of the settlement Dannon will set up a fund of up to $35 million to reimburse qualified consumers for purchases. Customers who purchased Activia or DanActive yogurt since they were introduced in 2006 and 2007, respectively, will be able to file for reimbursement.

Dannon will also change labeling and marketing to "increase the visibility of the scientific names of the unique strains of probiotics that are in each of these products,'' Dannon said in a statement.

Once the settlement is approved, consumers will be able to find out more about the process for filing for reimbursement and other information at www.DannonSettlement.com.

Florida Insurance Chief: Homeowners Rates Might Rise; State Farm Might Stay

Homeowners insurers doing business in Florida -- established as well as new --are losing money and the state regulator says rates may need to go up.

Also, the state's largest private home insurer, State Farm Florida, which wants to leave the state because McCarty won't give it rate hikes it says it needs, could be staying after all, perhaps as a slimmed down model of its former self.

Insurance Commissioner Kevin McCarty told Gov. Charlie Crist and Florida Cabinet members that 84 of the 210 property/casualty insurers doing business in the state reported underwriting losses in their national results at the end of the second quarter. Also, of the state's newest 21 insurers, 15 lost money on underwriting as of that date.

McCarty said this is not a loss situation unique to Florida but is happening nationally. He also said it is not unusual for start-up insurers to lose money at first.

But he told officials that in Florida insurers have identified a number of cost factors that are driving their results. These include greater-than-expected premium reductions for mitigation discounts, rising fraud related to mitigation discounts awarded to property owners, the cost of reinsurance, the replacement cost methodology used in Florida, and an increase in not just sinkhole claims but in the costs to investigate homeowners' claims for possible sinkhole-related damage.

He said that insurers have told him that these concerns are "exacerbated" by the continuing economic downturn and the decline in Florida's real estate market and rise in foreclosures.

Asked what can be done, McCarty said the state's options are limited. ''There are only two alternatives: Increasing rates, which is really just affecting the symptom, or looking back at the core problems and what can be done,'' he told officials.

The latter -- looking at core problems -- might include re-examining the mitigation credits, sinkhole coverage and replacement cost programs and beefing up anti-fraud efforts.

However, one of the main cost drivers, reinsurance, is outside the state's control to fix, he added. He also expressed "cautious optimism" that the insurance marketplace will be helped as the state's economy and housing markets improve.

He cited reinsurance as the "overriding concern" for insurers. He said Florida's state-backed hurricane reinsurance fund provides important stabilization but that insurers in the state are still heavily reliant upon Lloyd's, Bermuda and other private markets for reinsurance. He said reinsurance rates have been rising at a 15 percent clip, driven in part by catastrophes around the globe, and Florida insurers have had to cope with higher reinsurance costs even though the state has not suffered a major storm for several years. If the state is hit with a major storm, this cost pressure will only get worse, he warned.

McCarty said the state is still negotiating with big insurer State Farm over its proposed withdrawal from the property market. The insurer wants to drop some 770,000 policies but the state and the insurer have not yet agreed upon a plan to do this. Until they do, State Farm is blocked from dropping its customers.

McCarty raised the possibility of State Farm remaining in the state but with a scaled down company.

"We would be better served if State Farm stayed to some degree," McCarty said. He suggested that the insurer's recent move, which the insurance department approved, to discontinue certain policyholder discounts is a step towards the insurer reducing its exposure in the state that could help its bottom line.

However, if State Farm does finally exit, he said the marketplace appears poised to absorb most of the policies it leaves behind. About 30 insurers -- with what McCarty said "appears to be enough capital" -- have expressed interest in taking on some of State Farm's business. Most of these carriers are established players with "superior ability to negotiate reinsurance contracts" and not the newer entries into the market, he stressed.

McCarty said the state is reviewing the program that awards discounts to homeowners who make modifications to their houses to limit damage from major storms. He acknowledged that there appear to be incentives for fraud in awarding of the credits and that there may be some duplication in the implementation of credits by insurers. A report released this summer by the Florida Insurance Agents Association concluded that the program is riddled with errors and fraud by vendors, insurers, customers and agents.

McCarty suggested it may be necessary to introduce some sort of affidavit requirement or verification procedure to assure that modifications qualify for discounts. He also said the state will have to augment its fraud investigation efforts surrounding the mitigation program.

He also said that some insurers told him they underestimated the impact on their revenues of the mitigation discounts, which has contributed to some of them losing money.

He explained that insurers' complaints about sinkhole claims are not over legitimate claims but have to do with the considerable expense of investigating an increasing number of complaints that may have more to do with normal ground settlement than with sinkholes.

McCarty also said the state needs to work with insurers on the replacement cost problem to "balance" the concerns of consumers who need enough money to fix their roofs with those of insurers concerned that that too often the insurance money isn't spent on the roof.

Obama Grants $25 Million to States for Medical Malpractice Pilot Projects

The White House said Thursday it had allocated $25 million in grants to states for a pilot program that would seek to ease the impact of malpractice suits on the U.S. medical system, as President Barack Obama pushes for sweeping healthcare reform.

Obama offered the plan in a speech to Congress last week in connection with the wishes of many legislators, particularly Republicans, that medical malpractice laws be reformed as part of an overhaul.

The U.S. healthcare industry costs $2.5 trillion annually but leaves 46 million Americans uninsured and with little access to medical care.

Obama and his fellow Democrats in Congress are fighting hard for legislation on reforms to the system, the president's top domestic policy priority. But they have so far failed to win Republican support.

"Many doctors report that they practice costly 'defensive medicine' because they are fearful of lawsuits," Health and Human Services Secretary Kathleen Sebelius told a news briefing at the White House.

Republicans and doctors have long sought changes in the U.S. malpractice system, such as caps on some types of awards and reductions in spiraling malpractice insurance costs. Trial lawyers -- who traditionally are generous donors to Democrats -- have opposed many reforms.

The trial lawyers organization quickly issued a statement saying that any malpractice change should not risk patients' right to seek justice if they are injured.

"Any changes to the malpractice system must focus on patient safety and preventable medical errors, not limiting patients' legal rights," American Association for Justice President Anthony Tarricone said.

Sebelius said the pilot programs would start quickly.

"The president feels so strongly about this that he wants us to move ahead right now. He's not using this as a lever in the healthcare (reform) debate," Sebelius said."

The demonstration program will provide grants for up to three years for up to $3 million each for states and health systems to develop patient safety and medical liability programs, the White House said.

It will also offer one-year planning grants for up to $300,000 for states and health systems that want to implement plans.

The program calls for a review of the initiatives, to be conducted and reported in December.

Gulf Coast Construction 'Woefully Inadequate' to Survive Storm Flooding

Government minimum flood elevation requirements for properties vulnerable to storm surge throughout the Gulf Coast region are "woefully inadequate," according to a new study of property damage caused by Hurricane Ike, which struck the Bolivar Peninsula near Galveston, Texas one year ago yesterday, Sept. 13, 2008.

The study reveals that significantly more Gulf Coast homes and businesses are imperiled by disastrous flooding from storm surge than previously recognized by property owners or policymakers.

The authors say that the National Flood Insurance Program (NFIP) should do a better job of encouraging building at higher elevations to avoid flooding.The NFIP, which provides flood insurance to homes and businesses, also establishes base flood elevation (BFE) levels for properties.

The report, Hurricane Ike: Nature's Force vs. Structural Strength, was issued by the Institute for Business & Home Safety (IBHS), a not-for-profit research organization supported by property insurers and reinsurers.

"Lessons learned from Hurricane Ike, which is the third-costliest hurricane on record, should be used by vulnerable communities from Texas to Maine to effectively reduce property damage in all hurricane-exposed areas," said IBHS President and CEO Julie Rochman.

"Simply put, the study found that many properties are not built high enough to withstand storm surges, tightly enough to prevent water from causing interior damage or strongly enough to prevent damage when high winds strike."

IBHS questions the current basis for elevating properties along the Gulf Coast and urges the NFIP to provide greater incentives for building well above the minimum elevations now in place. More than 50 percent of the nation's population lives within 50 miles of the coast, with more than $9 trillion of insured coastal property vulnerable to hurricanes.

According to the study's findings, the BFE requirement for homes on Texas' Bolivar Peninsula ranged between 13 feet for homes built in the 1970s and 17 feet to 19 feet for homes built beginning in 1983. All but a handful of properties within the first few rows of houses from the coast, built to even the highest elevation requirements, were washed away during Hurricane Ike.

By contrast, the study found that 10 homes on the Bolivar Peninsula designed and built under IBHS's building code-plus new construction program, Fortified…for safer living, survived the storm sustaining minor damage. The Fortified homes had outdoor decks at 18 feet that were destroyed, but the homes, which were elevated to 26 feet, survived.

According to IBHS Senior Vice President of Research and Chief Engineer Dr. Tim Reinhold, most homes in coastal areas are built to or slightly above 100-year base flood elevations. "A 100-year flood means that the level of flood water has a 1 percent chance of being equaled or exceeded in any single year. However, it is well recognized in the engineering community that coastal homes built to this level have a 26 percent chance of being flooded or demolished over the life of a 30-year mortgage. This chance increases to about 40 percent in a 50-year period," Reinhold said.

"All it takes is a breaking wave about 2 feet above the base of a house to knock out the bottom floor or destroy a frame house," explained Reinhold. "The chances of destruction can be significantly reduced by employing what has been learned about the importance of proper elevation, which can be relatively inexpensive when building a coastal home," he continued. "For example, building to a 500-year base flood elevation reduces the chance of storm surge exceeding the base elevation to about 10 percent in a 50-year period."

The IBHS study also provides a detailed, real world performance evaluation of superior construction techniques when tested by a truly extreme weather event;

It also includes a retrofit guide for Texans in coastal areas to use. The guide takes into account the current Texas building code requirements and outlines specific retrofit options that homeowners and residents can use to harden their property by doing things such as strengthening their roofs, accoroding to Rochman.

Obama Gives Proponents Hope for Medical Malpractice Reform

Following President Barack Obama's offer of compromise on an issue that has long divided Washington, congressional health care negotiators are considering proposals to foster alternatives to medical malpractice lawsuits.

The possibility that malpractice changes could be part of health care legislation that suddenly seems to have better chances of passing has sent doctors and trial lawyers scrambling.

Senators on the Finance Committee are looking at the possibility of special courts in which a judge with medical expertise would hear malpractice cases, says Sen. Kent Conrad, D-N.D. The theory is that medical judges wouldn't be as easily swayed by emotion as are lay juries. Other possibilities include the option of arbitration, as well as some liability protection for doctors who follow "best practice'' clinical standards in treating their patients.

Many economists are skeptical that malpractice insurance premiums paid by doctors -- or even the practice of defensive medicine to avoid litigation --are major reasons for soaring health care costs. But the issue looms large politically because many conservatives in both parties are convinced that doctors routinely order up tests their patients don't need because they're afraid of getting sued.

Obama's overture in his speech last Wednesday night could give him a way to peel off some Republican votes, as well as shore up support from moderates in his own party. The president said that while he doesn't see malpractice changes as a "silver bullet,'' he's talked to enough doctors to suspect that fear of litigation contributes to unnecessary costs. He's directing the Health and Human Services Department to provide funding for pilot programs to test some alternatives to litigation.

"I hope this signals a commitment to meaningful malpractice reform,'' said Sen. Mike Enzi, R-Wyo., one of only three Republicans in the Senate still negotiating with Democratic counterparts seeking an elusive bipartisan compromise.

Doctors' groups, which lost the battle for national limits on jury awards for pain and suffering, now see a possibility for other ways to reduce malpractice lawsuits.

"I think there's been significant movement,'' said Dr. James Rohack, president of the American Medical Association. "The physician community has said it's a problem. The Republicans have said it's a problem. And now you have a Democratic president who says it's time to deal with this.''

Trial lawyers say no further action is needed from lawmakers.

"It shouldn't be part of the health reform debate in Congress because the president is already doing something today,'' said Linda Lipsen, the top lobbyist for the American Association for Justice, which represents lawyers. "I think it should close the door because the president has taken control over the issue.''

Administration officials said Obama's order will encourage states to experiment with programs that reduce litigation and promote patient safety. Preventable medical errors are estimated to cause 44,000 to 98,000 deaths a year.

HHS officials pointed to two types of programs in particular. Both are being promoted by Rep. Bart Gordon, D-Tenn., a longtime supporter of malpractice curbs whose amendment authorizing such tests was incorporated in the House health care legislation this summer.

One kind, known as "early disclosure'' or "Sorry Works,'' encourages doctors and hospitals to own up to their mistakes, apologize to patients and their families, and offer restitution as well as a pledge of corrective action to prevent other patients from being harmed by the same mistake.

The second type of program requires would-be malpractice plaintiffs to go before an expert before they proceed to court. The expert -- it can also be a panel -- acts like a grand jury to weed out frivolous cases. Gordon said that since his state of Tennessee adopted such a requirement last year, the number of malpractice cases filed has dropped by 69 percent. And malpractice insurance premiums are expected to decline by 2.5 percent this year.

Gordon and Enzi are both interested in broadening the experiment to include health courts that would focus mainly on malpractice cases. The lawmakers believe such specialized courts could be structured to protect the rights of aggrieved patients and their families, and would probably deliver speedier verdicts than the current system.

The trial lawyers are working to head that off. "We don't think that doctors and hospitals need special courts,'' said Lipsen. "It's a slippery slope. First you have a court for doctors, and then what? A court for plumbers?''

Nonetheless, Gordon says he doesn't see any justification for limiting the experiments with other ways to handle malpractice cases. "I certainly think the door is open now to discussion of any kind of legitimate alternative,'' he said.

P/C Insurers Report Surge in Suspicious Claims

Property/casualty insurance companies report that the number of claims suspected of possible fraud has jumped 13 percent for the first half of this year compared to last year's first six months.

A review of suspicious insurance claims referred to the National Insurance Crime Bureau during the first half of 2009 shows increases in nearly all referral categories.

The bureau said suspicious car fires are up 20 percent, suspicious auto glass claims up 76 percent and questionable product liability claims up 90 percent.

A total of 41,619 "questionable claims" were referred to NICB in the first half of 2009 compared with 36,743 received during the same period in 2008. These are claims that NICB member insurance companies refer to NICB for closer investigation based on one or more indicators of fraud.

Property referral reasons showed an overall increase of 20 percent inthe first half of 2009. Hail damage accounted for the largest increase in property referrals, with a 135 percent rise. Fire/arson referrals accounted for the smallest increase with 8 percent.

Casualty referrals showed an overall increase of 15 percent in the first half of 2009.The largest increase was seen in slips and falls, with a 47 percent rise.

Commercial referrals showed an overall increase of 19 percent. The largest increase in commercial referrals was seen in product liability, with a 90 percent rise. Construction/Farm/ Heavy Equipment (not theft) referrals showed the next largest increase with 89 percent. Cargo theft, false/inflated business interruption, vehicle theft and farm loss referrals all decreased.

Duplicate billing accounted for the largest increase in workers' compensation referrals with a 100 percent rise. Workers' compensation referrals showed an overall increase of 2 percent.

Vehicle referral reasons shot up 21 percent overall, with the largest increase of 76 percent seen in auto glass fraud.

"While there has been modest improvement within a few categories of referrals, the overall number of questionable claims for the first half of 2009 is 13 percent higher than it was at this time last year," said Joe Wehrle, NICB President and Chief Executive Officer.

In California, officials recently reported a rise in suspicious auto arson and auto theft fraud referrals in that state.

The National Insurance Crime Bureau, headquartered in Des Plaines, Illinois, is supported by more than 1,000 property and casualty insurance companies and self-insured organizations.

9/11 and Insurance: The Eight Year Anniversary

Insurance claims dollars are helping to rebuild Lower Matthattan even eight years after the Sept. 11, 2001, terrorist attacks. The 9/11 attacks produced the second largest loss in the history of insurance, falling just behind the claims losses left by Hurricane Katrina in 2005.

In total, the 9/11 attack generated insured losses of $39.5 billion (adjusted to 2008 dollars), including property, business interruption, aviation, workers' compensation, life and liability insurance claim costs. About two thirds of these losses were paid for by reinsurers, companies that provide insurance for insurers. (See graph below)

1) Estimated September 11 industry loss at 2001 price levels is $32.5 billionSource: Insurance Information Institute

A total of 2,976 people perished in the Sept. 11, 2001 terrorist attacks in New York, Washington, D.C. and Pennsylvania, excluding the 19 hijackers. It was the worst terrorist attack on record in terms of fatalities and insured property losses, which totaled about $23 billion (in 2008 dollars).

"9/11 was the largest loss in the history of insurance until Hurricane Katrina in 2005 when insurers paid claims totaling more than $40 billion to help people along the Gulf coast rebuild their homes and businesses," said Robert P. Hartwig, the Insurance Information Institute's president and chief economist. "Insurance claim dollars are playing an essential role in rebuilding Lower Manhattan.

Obama Urges Congress to End Bickering and Pass Healthcare Reform

President Barack Obama told Congress Wednesday to end its political bickering and move quickly on a broad healthcare overhaul that would dramatically transform the U.S. health system and insurance market.

In a sometimes emotional speech, Obama said lawmakers were closer than ever to enacting healthcare reform and spelled out proposals to improve conditions for those with insurance and expand the choices for 46 million uninsured Americans, including a controversial government-run "public option."

He also sharply rebuked critics, accusing them of substituting scare tactics for honest debate by pushing false ideas like the charge that "death panels" would decide treatment for the elderly.

"I will not waste time with those who have made the calculation that it's better politics to kill this plan than improve it," he told a joint session of Congress and a national television audience. "If you misrepresent what's in the plan, we will call you out."

Democrats, who have struggled for decades to enact healthcare reforms, gave Obama frequent standing ovations while Republicans murmured unhappily at times and held aloft copies of a Republican-sponsored healthcare bill.

Republican Congressman Joe Wilson shouted "you lie" when Obama said his plan would not insure illegal immigrants.

Republicans also laughed loudly when Obama said "there remain some significant details to be ironed out."

Obama hoped the speech would rejuvenate his flagging push for an overhaul of the $2.5 trillion healthcare system and reclaim control of a debate that has bogged down in Congress amid rising public skepticism.

He said the overhaul would cut costs, improve care and regulate insurers to help protect consumers while expanding coverage. He repeated his pledge that the proposal, which would cost $900 billion over 10 years, would not increase the budget deficit.

As promised, he spelled out the concepts he wanted in any final bill passed by Congress, including affordable coverage for all Americans and creation of an insurance exchange where individuals and small businesses could shop for policies.

He reiterated his support for a government-run insurance plan -- the so-called "public option" -- that has drawn strong opposition from critics who say it would harm insurance companies and amount to a government takeover of the industry.

But he was clear that the lack of a public option in any final bill would not be a deal-breaker, and he promised to entertain Republican ideas to foster more competition and reduce costs.

"The public option is only a means to that end -- and we should remain open to other ideas that accomplish our ultimate goal," he said.

CLASH ON PUBLIC OPTION

In the Senate, months of bipartisan Finance Committee talks by the so-called "Gang of Six" negotiators moved into the final stages earlier in the day as the panel's Democratic chairman, Max Baucus, said it was time to proceed with or without Republicans.

Baucus told reporters he would push ahead with a bill next week modeled after proposals he distributed recently to members. That plan would levy a fee on insurers to help pay for coverage but would not include a government-run option, which he said "cannot pass the Senate."

Baucus's plan would tax insurance companies on their most expensive healthcare policies and offer tax credits to individuals and families to help offset the cost of premiums.

Three committees in the House and one other Senate panel have completed work on a healthcare bill, leaving the Senate Finance Committee as the final hurdle before each chamber takes up the issue.

Republicans have balked at the total cost, questioned Obama's pledge not to increase government debt and called some of the proposals a first step to a government takeover of healthcare.

Afterwards, few minds seemed to have been changed by the speech.

"When it comes to health care, Americans don't want the government to tear down the system we have and build an even bigger, government-run system that adds massive spending and debt," Senate Republican Leader Mitch McConnell said.

Jay Timmons, the executive vice president of the National Association of Manufacturers, said he was concerned that many of the proposals "will increase costs and threaten economic recovery."

In a bid to win Republican support, Obama proposed a series of state demonstration projects on medical malpractice reform, a long-sought goal of Republicans. He also endorsed a proposal from Republican presidential foe John McCain for an insurance pool for high-risk consumers.

Obama said he would prohibit insurers from dropping coverage for sick patients and capping coverage in a year or lifetime, would place a limit on out-of-pocket expenses, require insurers to cover routine check-ups and tax the most expensive insurance plans.

He said millions of uninsured Americans were living one illness away from bankruptcy, and others could not get insurance because of pre-existing conditions. He promised tax credits for individuals who cannot afford coverage.

"We are the only advanced democracy on Earth -- the only wealthy nation -- that allows such hardships for millions of its people," he said.

Reducing waste and inefficiency in Medicare and Medicaid -- the healthcare plans for the elderly and poor -- would pay for most of the plan, he said, with the rest coming from a fee on insurers who would benefit from tens of millions of new customers.

Obama Healthcare Speech to Address Tort Reform, Public Option, Costs

President Barack Obama takes on the bitter healthcare reform debate Wednesday with a high-stakes speech to Congress on his top domestic policy priority.

Faced with falling public approval ratings, Obama said his televised address at 8 p.m. EDT would provide Americans with "a much more detailed plan" about his vision for overhauling the $2.5 trillion U.S. healthcare system.

"They will have a lot of clarity about what I think is the best way to move forward," Obama told ABC network's "Good Morning America" show.

His fellow Democrats, who have solid majorities in both houses of Congress, have struggled to craft a reform bill they can agree on, while most Republicans have fought it, arguing that it amounts to a government takeover of healthcare.

Obama's speech marks a new approach in the White House's effort to rebuild support for the overhaul after Republicans took control of the healthcare debate during the summer with a volley of attacks on the Democrat proposals.

The Republican criticism resonated with many Americans worried that the $1 trillion cost of the overhaul would add to the country's mountain of debt, despite White House assertions that it would be fully paid for.

White House spokesman Robert Gibbs said Obama will discuss reforming medical malpractice lawsuits, which Republicans blame for raising medical costs.

"The president will talk about meaningful malpractice reform tonight. What I hope that does is cause Republicans to understand that we're close to getting something truly significant done for the American people, truly significant for those struggling with the high cost of health insurance," Gibbs said on "Fox Morning News."

But Gibbs would not say whether Obama would propose capping malpractice claims, as many Republicans want.

DEFINE HIS PRESIDENCY

Obama's success or failure in getting Congress to pass comprehensive healthcare reform this year could help define the rest of his presidency. If he fails he would be politically weakened and would likely struggle to get the rest of his ambitious legislative agenda through Congress.

Obama told ABC he would use his speech to "make sure that Democrats and Republicans understand that I'm open to new ideas, that we're not being rigid and ideological about this thing, but we do intend to get something done this year."

He dodged repeated questions on whether he would veto any healthcare bill that did not provide for a government-run healthcare plan to compete with private insurers.

"There are principles that if they are not embodied in the bill, I will not sign it," he said.

The bill should not increase the deficit, should expand healthcare coverage to the uninsured and include insurance reforms, he said.

Legislators have offered a variety of proposals, but appear divided over most of them.

Senate Finance Committee Chairman Max Baucus, a Democrat who leads a group of six senators trying to craft compromise proposals, will put forward a plan including sweeping insurance market changes and a fee on companies that will help pay to cover the uninsured, said a source familiar with the proposal.

It calls for non-profit cooperatives to compete with insurance companies but does not contain the government-run health insurance option sought by many liberal Democrats and backed by Obama, the source said.

One administration official said the president would use his speech on Wednesday to articulate his vision of bringing affordable coverage to those 46 million Americans without insurance and more security to those who do.

"His plan will bring reforms that will reduce the unsustainable growth in the cost of healthcare, which has doubled in the last decade and will again, unless we act," said the official, who requested anonymity.

Insurance companies, pharmaceutical manufacturers, hospital managers -- and average American patients -- all have huge stakes in how the battle plays out.

"We're at the point in the legislative debate where he needs to put some things on the table and take some other things off," said Darrell West, director of governance studies at the Brookings Institution think-tank in Washington.

GETTING THE VOTES

Obama discussed healthcare with Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi on Tuesday afternoon. The two Democrats expressed optimism after the meeting that a reform measure would pass.

Pelosi said she believed the House would not pass a reform bill without a public option.

Olympia Snowe, a Republican member of the Senate negotiating group, supports a compromise that would not initially include a public option but would "trigger" the creation of a government program if insurance companies failed to meet cost and quality benchmarks.

Obama's speech will be aimed at least as much at Democrats in Congress as the public. If he can energize and unite them, he can pass healthcare reform, analysts said.

New Health Care Draft Would Omit Public Plan Provider

Health insurance reform legislation drafted for the Senate Finance Committee would create a network of nonprofit cooperatives as an alternative provider for the coverage, according to an outline obtained by National Underwriter.

A cooperative provider system is being proposed in place of the controversial government-operated “public plan” concept that has created controversy.

The outline of the legislation was prepared by the office of Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, in preparation for a meeting of the six-member bipartisan subgroup that has been meeting for months in hopes of drafting a compromise reform plan that could pass the Senate.

Sen. Baucus hopes to win agreement from the subgroup for his plan and unveil it before President Obama makes his critical address to Congress tomorrow night. During the address, President Obama is expected to outline what he would support and what he would oppose in an omnibus health care reform plan.

The proposal as outlined in the so-called “chairman’s mark” would also impose a tax on insurance companies that offer the most expensive insurance plans. This is a compromise designed as an alternative to proposals to tax people who receive these so-called “Cadillac plans” directly. It would raise about $180 billion over the next 10 years.

The proposal would also impose a fee on all health insurance companies according to their market share.

Joel Kopperud, a government affairs director for the Council of Insurance Agents and Brokers, responded to the draft by saying, “We’re encouraged by the chairman’s proposal, which seems to generally build on the employer-provided system.”

He said it remains unclear under the draft how the proposed co-ops would be designed, “but we are hopeful that they would be established in a way that competes fairly with the private market.”

Mr. Kopperud added, “We remain very concerned that any new taxes or fees on insurance plans will ultimately be passed on to the consumer.

“We recognize that a lot of work remains, and we hope that bipartisan consensus can be achieved on a solution that preserves employer-provided coverage,” he said.

Analysts at Washington Analysis cautioned that while Sen. Baucus hopes to begin work within his committee on his draft starting next week, two members of the group of six “have neither discarded their opposition to liberal efforts nor the requirements on what it would take for them to support a measure. Yet they still maintain they are not walking away from the negotiations.”

Those key members are Sen. Charles Grassley, R-Iowa, ranking member of the committee, and Sen. Mike Enzi, R-Wyoming, ranking member of the Senate HELP Committee.

The analysts added, “We doubt either will bless a bill from the Gang of Six, but the odds still favor support from Senator Olympia Snowe, R-Maine.

Significantly, the plan unveiled by Sen. Baucus does not contain the so-called “Community Living Assistance Services and Supports Act,” or CLASS Act, which would create a long-term care entitlement system. Those provisions are contained only in legislation drafted so far by the Senate Health, Education, Labor and Pension Committee or in legislation written by three House committees.

The Senate Finance Committee draft would require health insurance plans serving the individual market to offer coverage on a guaranteed basis starting Jan. 1, 2013. It would prohibit insurance companies from excluding coverage for pre-existing conditions.

Moreover, limited benefit plans and lifetime limits would be prohibited, and health insurance companies would be prohibited from rescinding health coverage.

Health insurance premiums would be allowed to vary based only on tobacco use, age and family composition, according to the draft. Premiums could also vary to reflect geographic differences. But, taking all these factors together, premiums could not vary by more than 7.5 to 1.

Individuals with current coverage in the non-group market would be allowed to keep what they have under the plan.

The rules for the small group market would be the same as those for the non-group market except that they would be phased in over a period of up to five years beginning Jan. 1, 2013.

Under the proposal, some states may enact reforms quicker but others may take up to five years.

For purposes of these reforms, a small group would be defined as 1 to 50 employees, or up to 100 depending on state law. In 2017, states must develop a phase-in schedule, not to exceed five years, for incorporating larger groups, up to 100 employees.

The draft bill would require drug manufacturers to provide a 50 percent discount on the negotiated price for brand-name drugs covered on plan formularies when beneficiaries enter the “doughnut,” or the coverage gap now part of the Part D prescription drug benefit under Medicare.

Beneficiaries are eligible provided they do not qualify for low-income subsidies, do not have employer-sponsored coverage or do not pay higher Medicare premiums under Part B or Part D.

It would also require states by 2010 to establish an ombudsman office to act as a consumer advocate for those with private coverage in the individual and small group markets. Policyholders whose health insurers have rejected claims and who have exhausted internal appeals would be able to access the ombudsman office for assistance.

Also in 2010, according to the draft, states would establish an exchange to provide easier, more efficient comparison of health insurance plan benefits and premium costs.

Tornado Threat Increases as Gulf Hurricanes Get Larger

Tornadoes that occur from hurricanes moving inland from the Gulf Coast are increasing in frequency, according to researchers at the Georgia Institute of Technology. This increase seems to reflect the increase in size and frequency among large hurricanes that make landfall from the Gulf of Mexico.

The findings can be found in Geophysical Research Letters online and in the Sept. 3, 2009 issue.

"As the size of landfalling hurricanes from the Gulf of Mexico increases, we're seeing more tornadoes than we did in the past that can occur up to two days and several hundred miles inland from the landfall location," said James Belanger, doctoral student in the School of Earth and Atmospheric Sciences at Georgia Tech and lead author of the paper.

Currently, it's well known that when hurricanes hit land, there's a risk that tornadoes may form in the area. Until now, no one has quantified that risk because observations of tornadoes were too sporadic prior to the installation of the NEXRAD Doppler Radar Network in 1995. Belanger along with co-authors Judith Curry, professor and chair of the School of Earth and Atmospheric Sciences at Tech and research scientist Carlos Hoyos, decided to see if they could create a model using the more reliable tornado record that's existed since 1995.

The model that they developed for hurricane-induced tornadoes uses four factors that serve as good predictors of tornado activity: size, intensity, track direction and whether there's a strong gradient of moisture at midlevels in the storm's environment.

"The size of a tropical cyclone basically sets the domain over which tornadoes can form. So a larger storm that has more exposure over land has a higher propensity for producing tornadoes than a smaller one, on average," said Belanger.

The team looked at 127 tropical cyclones from 1948 up to the 2008 hurricane season and went further back to 1920 modifying their model to account for the type of data collected at that time. They found that since 1995 there has been a 35 percent percent increase in the size of tropical cyclones from the Gulf compared to the previous active period of storms from 1948-1964, which has lead to a doubling in the number of tornadoes produced per storm. The number of hurricane-induced tornadoes during the 2004 and 2005 hurricane seasons is unprecedented in the historical record since 1920, according to the model.

"The beauty of the model is that not only can we use it to reconstruct the observational record, but we can also use it as a forecasting tool," said Belanger.

To test how well it predicted the number of tornadoes associated with a given hurricane, they input the intensity of the storm at landfall, it's size, track and moisture at mid-levels, and were able to generate a forecast of how many tornadoes formed from the hurricane. They found that for Hurricane Ike in 2008, their model predicted exactly the number of tornadoes that occurred, 33. For Hurricane Katrina in 2005, the model predicted 56 tornadoes, and 58 were observed.

The team's next steps are to take a look to see how hurricane size, not just intensity (as indicated by the Safir-Simpson scale), affects the damage experienced by residents.

"Storm surge, rain and flooding are all connected to the size of the storm," said Curry. "Yet, size is an underappreciated factor associated with damage from hurricanes. So its important to develop a better understanding of what controls hurricane size and how size influences hurricane damage. The great damage in Galveston from Hurricane Ike in 2008 was inconsistent with Category 2 wind speeds at landfall, but it was the large size that caused the big storm surge that did most of the damage."

AIG to Sell Asset Management Unit for $500M

American International Group Inc agreed Saturday to sell a part of its asset management business to Hong Kong tycoon Richard Li's Pacific Century Group for about $500 million, in the first major asset sale under the watch of its new chief executive.

AIG, which was rescued by the U.S. government with up to $180 billion in taxpayer funds, said it will get $300 million in cash at closing and a future consideration that includes a performance note and a continuing share of carried interest.

AIG Chief Executive Robert Benmosche told Reuters late last month that he did not favor a quick sale of company assets at any price, as the insurance giant tries to raise money to pay back some $80 billion it owes to the government.

Since taking over on Aug. 10, Benmosche has stopped the sale of the AIG's broker dealer group and paused the auction of its aircraft leasing unit, International Lease Finance Corp.

He also said in the interview that he had not yet decided what to do with the asset management business. "I'm concerned about its value in the marketplace right now," he said.

The deal with Pacific Century Group was done at a price that's competitive with other recent comparable asset management transactions, a source briefed on the matter said, declining to be named because the information is not public.

The business was put on the block at the beginning of this year, but the auction process dragged on for months.

In June, a source said that Pacific Century Group was planning to join a consortium of Franklin Resources Inc and private equity firm Crestview Partners LP, which was in exclusive talks at the time to buy the unit.

But Franklin subsequently dropped out of the group, and Crestview, which came close to doing a deal last month, did not make it past the finish line either.

Bridge Partners LP, a company owned by the Hong Kong-based private investment firm will buy the unit.

The business being sold operates in 32 countries and manages about $88.7 billion of investments of institutional and retail clients across a variety of strategies, including private equity, hedge fund of funds, listed equities and fixed income.

AIG Investments Chief Executive Win Neuger will head the new entity.

AIG is retaining its in-house investment operation that oversees about $480 billion of assets under management.

UBS acted as financial advisor to AIG and Perella Weinberg Partners advised Pacific Century Group. Debevoise & Plimpton LLP served as legal advisor to AIG.

Some State-Run Property Insurance Plans in Precarious Financial Situation

As the 2009 Atlantic hurricane season enters its peak period, the finances of a number of residual market property plans in hurricane-exposed states are on shaky ground. The credit crunch and prolonged economic downturn have exacerbated the already vulnerable financial condition of certain plans, making it more difficult for states to borrow funds, according a revised report by the Insurance Information Institute (I.I.I.).

The I.I.I.'s white paper, titled "Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice," says state-run insurers are putting themselves at increased risk through greater dependence on bond markets even as credit markets struggle to recover from the current financial crisis.

"Disruptions to credit markets will likely make it more difficult and more expensive for some of these plans to issue debt to pay for hurricane losses," wrote I.I.I. President and Economist Robert Hartwig and Claire Wilkinson, the I.I.I.'s vice president - Global Issues, co-authors of the paper.

"Ill-advised legislative steps over the course of several years have also expanded the exposure base of a number of plans such as Florida, yet at the same time curbed the rates they can charge," the authors wrote. "Such moves put state finances under threat and leave taxpayers and policyholders facing the potential for increased assessments in the years to come."

The report noted that legislation passed in several key states this year has started to address some of the problems facing certain plans. In addition, over the last two years, there has been a noticeable reduction in the number of policies and exposures in some parts of the residual property market due largely to the real estate bust and the addition of newly established insurance companies whose financial strength has yet to be tested by a major catastrophe.

The study acknowledged that over the last four decades, state-run property insurers have experienced explosive growth both in terms of the number of policies issued and the exposure value covered. Further, in the 19-year period from 1990 to 2008 - a period characterized by major catastrophes such as Hurricanes Andrew and Katrina - that growth has accelerated, the report said.

"Total policies in force (both habitational and commercial) in the nation's FAIR, Beach and Windstorm Plans combined nearly tripled from 931,550 in 1990 to 2.6 million in 2008. Total exposure to loss in the plans surged from $54.7 billion in 1990 to $696.4 billion in 2008 - an increase of 1,173 percent."

While a number of factors have contributed to the overall growth of the plans in the course of the last 20 years, the I.I.I. found that in some states, such plans have shifted away from their original purpose as predominantly urban property insurers. As a result, many have evolved from their traditional role as markets of last resort into much larger insurance providers, in some cases even becoming the largest property insurer in the state.

In Florida, for example, Florida Citizens, a plan that accounts for the vast majority (69 percent) of the total FAIR Plans exposure to loss, saw its exposure more than double from $210.6 billion in 2005 to $485.1 billion in 2007, reflecting rising coastal property values and higher building and reconstruction costs. Florida Citizens' exposure to loss declined somewhat to $421.9 billion in 2008 and by June 30, 2009, to around $400 billion.

While residual market property plans fulfill a crucial role by ensuring that policyholders can obtain insurance coverage, their exponential growth in the course of the last two decades has key implications for insurers and insurance buyers going forward, the report said. "In particular, there are a number of public policy considerations that will need to be addressed as insurers, regulators and legislators seek a long-term solution to managing and funding catastrophic risk in the future."

The study noted that when, due to political and/or regulatory constraints, insurers are unable to charge a premium commensurate with the risk they assume in coastal areas, this distorts the true cost of insurance coverage.

"Rate and underwriting restrictions on property insurers can result in a situation where high-risk property owners actually pay lower premiums, while low-risk property owners pay artificially higher premiums. This leads to unfair cross-subsidization among risk classes and discourages mitigation," Hartwig and Wilkinson wrote.

"Ultimately, policyholders in both coastal and non-coastal areas pay the price of inadequate premiums in the form of additional payments, such as assessments and taxes following federal/state bailouts, which are passed on to them. Even policyholders of unrelated risks, such as auto and liability, have to pay assessments."

Large Toy Maker Mattel Exempt from U.S. Third-Party Safety Test

Toy-makers, clothing manufacturers and other companies selling products for young children are submitting samples to independent laboratories for safety tests. But the nation's largest toy maker, Mattel, isn't being required to do the same.

The Consumer Product Safety Commission recently, and quietly, granted Mattel's request to use its own labs for testing that is required under a law Congress passed last summer in the wake of a rash of recalls of toys contaminated by lead. Six of those toys were produced by Mattel Inc., and its subsidiary Fisher-Price.

The new law sets strict limits for lead, lead paint and chemicals known as phthalates. It mandates third-party testing for companies, big and small, making products geared for children 12 and under.

"It's really ironic that the company that was a principal source of the problem'' is now getting favorable treatment from the government, said Michael Green, executive director of the Center for Environmental Health in Oakland, Calif.

Mattel is getting a competitive advantage, Green said, because smaller companies must pay independent labs to do the tests. Testing costs can run from several hundred dollars to many thousands, depending on the test and the toy or product.

Mattel says it demonstrated to the CPSC that its products go through rigorous safety tests. Spokeswoman Lisa Marie Bongiovanni also said Mattel has an appropriate "firewall'' in place to ensure test results are protected from corporate influence.

"We have extremely qualified people who work feet away from our production lines,'' Bongiovanni said. "It allows us to do more testing than any other toy company out there.''

Lead can cause irreversible brain damage. The six Mattel-related recalls in 2007 involved more than 2 million toys. They were part of a slew of recalls by several dozen companies. The recalls frightened parents and pressure came to bear on Congress to pass the new law, known as CPSIA. Mattel and Fisher-Price have not had any lead recalls since.

In June, Mattel agreed to pay a $2.3 million civil penalty for violating the lead paint ban.

CPSC spokesman Scott Wolfson said Mattel proved its case that its labs were insulated from undue corporate influence.

Similar requests from other companies that want to do their own testing are pending at the agency. The CPSC would not name the companies.

The agency approved seven Mattel labs as "firewalled third party laboratories'' _ the first to get that designation under the new law, which permits the "firewall'' exception. Mattel pushed hard for the firewalled labs provision when Congress was considering the legislation. The company spent more than $1 million in 2008 on lobbying, according to federal records.

Mattel's "firewalled'' labs are in Mexico, China, Malaysia, Indonesia and California.

CPSC issued no press release about the 3-0 vote in Mattel's favor, and information on the vote was not posted on the commission's Web site section pertaining to the CPSIA law.

Mattel says its situation is unique because it owns its production factories outside the U.S. and can do the required safety testing there. Mattel's Bongiovanni says the company also ships out some product to third-party labs, something it's been doing for years.

While Congress mandated the third-party testing, the commission in January said it would delay enforcement for a year of some of the testing requirements for phthalates and lead content -- though many companies are doing the tests anyway.

Survey: Most Support Laws Restricting Cell Phone Use While Driving

A vast majority of Americans surveyed say they would support legislation restricting cell phone use while driving.

Some 80 percent of those surveyed by Nationwide Insurance in its new One Your side survey say they would favor a ban on texting while driving, while two thirds favor a ban on cell phone calls, and more than half say they would support a ban on cell phone use altogether.

The survey was conducted Aug. 5-9, 2009 by Harris Interactive. Earlier this summer, Nationwide announced its support of the concept of a national ban on texting while driving to help curb crashes and reduce auto insurance claims.

The survey results are being announced as hundreds of highway traffic safety advocates and officials are convening at the Governors Highway Safety Association's annual conference in Savannah, Ga., to discuss driving while distracted (DWD) and other highway safety issues. This meeting is taking place in advance of a presidential summit on DWD that is scheduled for Sept. 30 and Oct. 1 in Washington, DC.

"In recent months, the debate about the dangers of DWD has intensified as more and more states consider taking legislative action," said Bill Windsor, Nationwide's safety officer. "The survey results confirm that there is strong public support for banning texting while driving. It also provides insight into support for additional restrictions policymakers may want to consider."

Support Differs

The results of the new survey show there are varying degrees of support for different types of restrictions. Overall, the survey found that 8 in 10 drivers support some type of cell phone usage restriction.

• The majority of respondents say they are supportive of laws restricting any type of cell phone use while driving.
  
• 80 percent of respondents support a ban on text messaging while driving.
  
• 80 percent of respondents support a ban on e-mailing while driving.
  
• Two thirds (67 percent) of respondents say they are supportive of laws restricting phone calls while driving.
  
• Of those who support some type of cell phone usage restriction, nearly 3 in 4 believe the law should apply to all drivers, not just specific groups.

In geographic regions where one would expect to find higher cell phone usage and more multitasking lifestyles, support for a ban was high. The majority of respondents in the west and northeast regions say they would support a ban on any type of cell phone use while driving.

While it's not surprising that older generations are supportive of bans, even members of Generations X (ages 33-44) and Y (ages 21-32), who are more likely to use cell phones, are supportive of laws - particularly those banning text messaging and e-mailing. Three fourths of Generation X and Y respondents favor these restrictions.

The overwhelming support for legislation may be driven by increased public recognition of the dangers associated with DWD. In 2008, Nationwide's DWD survey revealed that 45 percent of respondents had been hit or nearly hit by another driver using a cell phone.

Need for Education

According to the survey released today, respondents say they are witnessing a growth in distracted driving behavior on the roads, underscoring the importance of public education to raise awareness about this dangerous practice.

• More than half of respondents say they see more drivers using cell phones while driving than they did 12 months ago.
  
• Nearly three-quarters of respondents say that when they drive, they always or often see other drivers using cell phones."

The new information in this survey also indicates that many drivers are either in denial about their DWD habits or resistant to changing their behavior," said Windsor. "This suggests that legislation may not be enough to eliminate distracted driving and highlights the need for a technological solution that can prevent cell phone usage in moving vehicles while still allowing people to stay connected."

Nearly half (49 percent) of drivers say a law restricting use of cell phones would not change their behavior because they don't currently use cell phones while driving.

When you compare this statistic to Nationwide's 2008 DWD survey, which revealed that more than 80 percent of drivers admit to talking on their cell phone while driving, it may be the case that some drivers are either in denial or too embarrassed to admit their DWD problem.

Resistance to New Laws

In the new survey, four out of five respondents (82 percent) who admit to using their cell phones while driving say their behavior would change if cell phone usage were restricted by law.

However, 18 percent of respondents who admit to using their cell phones while driving say they would continue to do so regardless of a change in law, with Generation Y most likely to resist the change (26 percent).

Nationwide's 2008 DWD survey found that 43 percent of drivers believe technological advances that prevent cell phones from working in a moving vehicle would be the most effective solution to DWD.

This survey was conducted by Harris Interactive via its National Quorum telephone omnibus service. This study was conducted by telephone within the United States between Aug. 5-9, 2009 among a nationwide cross section of 1,008 adults (aged 18 and over). Figures for age, sex, race, and region were weighted where necessary to bring them into line with their actual proportions in the population. The results for the overall sample have a sampling error of +/-3 percentage points at a 95 percent certainty.

Reinsurers See Drops In Surplus, Combined Ratio, RAA Reports

U.S. reinsurers took a beating in their surplus during the first half, seeing a drop of $6.9 billion from last year—down 9.5 percent to $65.9 billion in 2009—but their combined ratio improved by 3.7 points, according to the Reinsurance Association of America.

The group of 19 U.S. property and casualty reinsurers surveyed by the Washington-based RAA wrote $12.8 billion of net premiums during the six months ended June 30, 2009, up slightly compared to $12.7 billion for the same period in 2008, the study found.

The combined ratio for the group was 93.8—a 3.7-point improvement from the 97.5 consolidated figure reported by a similar group of reinsurers for the six months ended June 30, 2008, RAA said. The ratio is attributable to a 65.4 loss ratio and a 28.4 expense ratio.

Among some of the net written premiums for carriers cited in the report:

• National Indemnity Company wrote $2.59 billion for the first half, down from $2.7 billion in 2008.

• Transatlantic/Putnam Reinsurance Company wrote $1.88 billion this year, compared with $1.85 billion in 2008.

• Munich Re America wrote $1.2 billion in 2009, up from $1.08 billion in 2008.

• SCOR U.S. Group/SCOR Re reported net written premiums for 2009 of $285 million, up from $185 million in 2008.

• White Mountains Reinsurance Company of America reported net premiums written in 2009 were $243 million, down from $296 million in 2008.

The survey is available at http://www.reinsurance.org.

RAA membership is diverse, including reinsurance underwriters and intermediaries licensed in the United States and those that conduct business on a cross-border basis. The RAA represents its members before state, federal and international bodies.