Louisiana Comp Costs Per Claim 35% Higher than Most States

The costs per all paid workers’ compensation insurance claims in Louisiana averaged 35 percent higher than the typical study state, according to a Massachusetts-based research group that studies workers’ comp.

In its “CompScopeBenchmarks for Louisiana, 10th Edition,” the Workers Compensation Research Institute (WCRI) found that injured workers in Louisiana were off the job longer than in other states with similar workers’ compensation benefit systems, resulting in higher-than-typical indemnity benefits per claim than in other study states, even though the workers’ weekly benefits were capped at lower levels in Louisiana.

In addition, medical costs and expenses per claim were among the highest of the 15 states in the study.

The study found that indemnity benefits per claim with more than seven days of lost time were 36 percent higher than the typical study state as a result of a longer duration of temporary disability.

WCRI reported that injured workers in Louisiana were off work 34 weeks on average, which was nine to 10 weeks longer than Massachusetts and Pennsylvania and 15 weeks longer than Michigan.

Medical costs per claim were 20 percent higher than in the typical study state, the result of higher utilization and higher nonsurgical prices paid. In addition, the duration of medical treatment was 6.5 weeks (16 percent) longer than in the median study state.

Despite little change in the medical fee schedule rates since 1994, the 2006 medical fee schedule in Louisiana was higher than the median of 42 states with fee schedules for all service groups except surgery.

Payments per claim for hospital outpatient services also were higher than the median study state, WCRI said. Hospital inpatient payments per claim, however, were lower compared to other study states.

Expenses to manage claims were among the highest of the study states, including higher than average medical cost containment expenses per claim, defense attorney payments, and medical-legal expenses per claim.

WCRI reported defense attorney payments per claim with more than seven days of lost time were the highest among the 15 study states, at an average of nearly $6,500 per claim with defense attorney payments greater than $500.

AIG Without Help Would Have Killed U.S. Economy, Say Paulson, Geithner

Former Treasury Secretary Henry Paulson and current Secretary Timothy Geither both told a skeptical congressional committee today that if U.S. action was not taken to bail out American International Group it would have been a catastrophe for the nation.

Their comments came at a hearing before the House Oversight and Government Reform Committee, which has questioned all elements of federal bank and U.S. Treasury actions to supply billions of dollars to bail out the insurance conglomerate and pay its bank trading partners in full for claims against depreciated assets.

Mr. Geithner was scrutinized about his role as Federal Reserve Bank of New York president before he became secretary and the FRBNY's steps to squash disclosure of how much the banks were getting.

Two lawmakers on the committee doubting his denials in that effort asked for his resignation.

Mr. Geithner said that Federal Reserve Board acted to bail out American International Group because it was “the only fire station in town.”

Republicans on the panel, in a report, have said the FRBNY), which Mr. Geithner headed in 2008, pushed through the bailout by the Federal Reserve that provided a bonanza to banks that were AIG trading partners. They attacked the decision to pay off AIG’s bank counterparties to complex and highly speculative collateralized debt obligations in full and not to press them to take “a haircut” and accept only a percentage of what was owed.

At the conclusion of the testimony from Mr. Geithner, who denied he was part of the FRBNY demands that AIG withold information about the 100 percent payout to bank counterparties Rep. Darrell Issa, R-Calif., the committee’s ranking Republican member, said he “no confidence” in the secretary and called for his resignation. He told him “you are either incompetent” or tried to cover up the details of what was going on through payoffs of the CDS [credit default swaps].”

Rep. John Mica, R-Fla., said Mr. Geithner had given "lame excuses" and asked, "Why shouldn't we ask for your resignation." Mr. Geithner said that was his right, but, he still takes pride in decisions made by federal banking officials.

Committee Chairman Edolphus Towns, D-NY, while complianing in opening remarks that, "In the case of AIG nobody got a haircut. Instead, everybody got a piggy bank full of taxpayers money, said after questioning Geithner, “I don’t know what else you could have done.”

Mr. Geithner testified it was “important to remember that the Federal Reserve, under the law, had no role in supervising or regulating AIG, investment banks,.." but Congress gave the Federal Reserve authority to provide liquidity to the financial system in times of severe stress, he added.“Given that responsibility, the Federal Reserve had to act,” he said, because the Federal Reserve was “the only fire station in town.”

The AIG bank trading partners had hedged their investment in collateralized debt obligations backed by U.S. residential mortgages through purchase of insurance through credit default swaps issued by AIG.

Mr. Geithner said that “imprudent risk-taking in better times” at AIG “meant that, when the financial cycle turned, AIG had hundreds of billions of dollars in commitments without the capital and liquid assets to back them up.”

He said such “excessive risk-taking should not have been allowed. But it was.”

He added, “Despite regulators in 20 different states being responsible for the primary regulation and supervision of AIG’s U.S. insurance subsidiaries, despite AIG’s foreign insurance activities being regulated by more than 130 foreign governments, and despite AIG’s holding company being subject to supervision by the Office of Thrift Supervision (OTS), no one was adequately aware of what was really going on at AIG.”

He defended the decisions of the FRBNY, the Board of Governors of the Federal Reserve and the U.S. Treasury by saying that the steps the government took to rescue AIG “were motivated solely by what we believed to be in the best interests of the American people.”

“We did not act because AIG asked for assistance,” he said. “We did not act to protect the financial interests of individual institutions. We did not act to help foreign banks.

“We acted because the consequences of AIG failing at that time, in those circumstances, would have been catastrophic for our economy and for American families and businesses.”

Mr. Paulson called AIG “an unregulated holding company” and a “mismanaged and misguided enterprise.”

The former treasury secretary said, “Although the road to complete recovery is slow and unemployment is still high, had AIG failed I believe we would have seen a complete collapse of our financial system, and unemployment easily could have risen to the 25 percent level reached in the Great Depression.”

The committee as part of its inquiry is probing whether the FRBNY acted inappropriately in limiting disclosures that as part of the bailout arrangements AIG would be paying off the banks in full.

“The rescue of AIG was necessary, and I believe that we in government who acted to rescue it—including [Treasury] Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and me—acted properly and in the best interests of our country,” he said.

Mr. Paulson said AIG needed rescue because it was “incredibly large and interconnected,” it was “seriously underregulated,” and because “it could not have been effectively wound down.”

Specifically, he said it had a $1 trillion dollar balance sheet; a massive derivatives business that connected it to hundreds of financial institutions, businesses and governments; tens of millions of life insurance customers; and tens of billions of dollars of contracts guaranteeing the retirement savings of individuals.

“If AIG collapsed, it would have buckled our financial system and wrought economic havoc on the lives of millions of our citizens,” Mr. Paulson said.

The second reason was that it was not effectively regulated. “Although many of AIG’s subsidiaries—including its insurance companies—were subject to varying levels of regulation, the parent entity was, for all practical purposes, an unregulated holding company.”

Consequently, there was no one regulator with a complete picture of AIG or a comprehensive understanding of how it was run. “It was not until AIG started to fail that regulators began to understand how badly managed it had been and how much the toxic aspects of parts of its business had infected otherwise healthy parts,” Mr. Paulson said.

Third, AIG could not be effectively “wound down,” he said. “Unlike failed depository institutions which can be taken over by the FDIC with little or no harm to depositors, or the GSEs [government sponsored enterprises] which were seamlessly placed into conservatorship by Treasury and the Federal Housing Finance Agency, there was—and is—no resolution authority available to wind down a failing institution like AIG.

“The only option is bankruptcy, a process that is simply not capable of protecting the millions of Americans whose finances are intertwined with AIG’s,” he said.

Mr. Paulson commented, “I do not mean to say that I am happy that we needed to intervene,” noting that taxpayer money should not have to be spent to save a “mismanaged and misguided enterprise.”

But, he added, “the fundamental problem lies not in how we intervened, but in why we needed to intervene.”

He said the U.S. needs to modernize its regulatory structure by creating a systemic risk regulator and resolution authority so any large firm that fails can be liquidated without de-stabilizing the system.

“Large financial enterprises in this country will always play a role that is essential to our economic growth, but they must only be permitted to grow and interconnect throughout our economy under careful oversight and with a mechanism for allowing those connections to be broken safely,” he added.

Meanwhile, Federal Reserve Board Chairman Ben Bernanke said stabilizing AIG, not the financial health of the trading partners, was the reason the Fed decided to pay off the AIG credit default swaps at par.

His statement came in a written response to Rep. Issal, who oversaw the minority report suggesting AIG bank counterparties were paid too much and the FRBNY and Federal Reserve attempted a cover up of bailout details.

Mr. Bernanke said, “The overriding motivating factor in structuring the payments to the counterparties was to relieve AIG of the destabilizing drains on its liquidity caused by the requirement to continue to post collateral as required by the CDS [credit default swaps] contracts.

“All counterparties were treated the same for payment purposes. Whether the individual counterparties were in relatively sound financial condition or not was not a factor in the decision regarding the amount paid to the counterparties or whether concessions should be sought from them.”

Mr. Geithner In response to a question, said the Fed had no legal or other authority to take any other action than it did in paying off the CDS. He said there was no way to put AIG in bankruptcy.

“To stand back and let it burn,” he said would be irresponsible and the Fed acted to protect the innocent through the bailouts and made an effort to reduce the cost to the American taxpayer to the lowest amount possible,.

He noted that the protections in place against bank bankruptcy do not exist for insurance companies.

Lloyd's Ordered to Pay Alleged Swindler Stanford's Defense Costs

A U.S. federal judge ordered insurer Lloyd's of London Tuesday to pay for alleged swindler Allen Stanford's defense.

Stanford and three other defendants sued the insurer after Lloyd's stopped providing coverage last year under a directors and officers policy, citing a money laundering exclusion.

"Without access to the funds for which plaintiffs duly contracted, through the Stanford entities, and upon which they relied, the court finds plaintiffs will be unable to mount the defense required in such complex cases as the criminal action and the SEC action,'' U.S. District Judge David Hittner said in a 42-page order.

Lloyd's must pay all costs and expenses that have been submitted within 10 days, the order said.

Stanford, his former chief investment officer Laura Holt and former accounting executives Gilbert Lopez and Mark Kuhrt and an Antiguan regulator face criminal and civil charges for for defrauding investors in a $7 billion Ponzi scheme involving certificates of deposit.

Stanford, 59, is in jail awaiting a January 2011 trial. Stanford, Holt, Kuhrt and Lopez have denied any wrongdoing.

The Lloyd's case is Laura Pendergest-Holt, R. Allen Stanford, Gilbert Lopez and Mark Kuhrt v Certain Underwriters at Lloyd's of London and Arch Specialty Insurance Co, U.S. District of Court, Southern District of Texas, No. 09-03712.

Stuck Gas Pedal Causes Second Major Toyota Recall

Toyota Motor Corp. built its reputation in the U.S. as a maker of safe and dependable vehicles, but the quality of the Japanese automaker's fleet continues to be tarnished by serious safety recalls.

Toyota said Thursday it is recalling 2.3 million vehicles in the U.S. to fix accelerator pedals with mechanical problems that could cause them to become stuck. The announcement comes just months after it recalled 4.2 million vehicles due to gas pedals that could become trapped under floor mats, causing sudden acceleration. That problem was the cause of several crashes, including some fatalities.

Toyota said Thursday's recall is due to potential problems with the gas pedal mechanism that can cause the accelerator to become stuck _ regardless of whether the vehicle contains a floor mat. Toyota said in certain rare cases, the gas pedal mechanism wears down, causing the accelerator to become harder to press, slower to return or, in some cases, stuck.

In a letter to federal safety officials dated Thursday, Toyota said the problem appeared to be related to the potential build-up of condensation on sliding surfaces in the accelerator system that helps drivers push down or release the gas pedal.

Toyota spokesman John Hanson said the automaker does not yet have a solution to the latest problem but is working to develop one. Toyota will soon be contacting owners directly about the recall, he said.

The recall affects the 2009-2010 RAV4, the 2009-2010 Corolla, the 2009-2010 Matrix, the 2005-2010 Avalon, the 2007-2010 Camry, the 2010 Highlander, the 2007-2010 Tundra and the 2008-2010 Sequoia. Of these, the Avalon, Camry and Tundra models -- encompassing about 1.7 million vehicles -- also were included in the previous gas pedal recall. Their accelerator pedals could be at risk both of becoming trapped under floor mats and becoming stuck due to mechanical problems.

Hanson said the company is unaware of any accidents or injuries due to the gas pedal problems associated with Thursday's recall, but could not rule it out for sure. He said the recall "came together very quickly.''

He added that all of the vehicles involved in the latest recall contain a gas pedal system that comes from a single supplier. He declined, however, to identify the supplier or say whether Toyota would continue doing business with the supplier.

"Responsibility for this in the end is ours,'' he said.

The National Highway Traffic Safety Administration said in a statement that the problem is "a serious safety issue and we are pleased Toyota is taking immediate action to address it.''

Toyota said drivers in the recalled vehicles whose gas pedals become stuck should firmly apply their brakes, drive the car to a safe location, shut off the engine and contact the nearest Toyota dealer. Drivers who experience the problem should not pump their brakes, Toyota said.

Toyota's last recall, announced in November, was blamed for several crashes, including an accident involving a Lexus that accelerated to more than 120 mph before crashing in San Diego, killing four people. It was the sixth-largest recall ever in the U.S.

Firms Fined after Worker Dies in Vat of Chocolate

Two chocolate processing companies in Camden, New Jersey have been fined for safety violations following the death of an employee who fell into a giant vat of chocolate in July.

The U.S. Department of Labor's Occupational Safety and Health Administration cited Lyons & Sons Inc. and Cocoa Services LP with a total of 12 serious citations.

Vincent Smith II died in July after he was hit by a paddle used to mix chocolate.

OSHA said there were improper safety precautions at the facility and that a first-aid program was not in place.

Fines for the two companies total more than $39,000.

A city judge had already levied a fine for operating a business without a license.

CIAB: Commercial Prices Under Pressure, Weak Market Continues

Premium rates for commercial property and casualty insurance continued to fall in the fourth quarter at the same 6 percent rate as in the earlier quarter, the Council of Insurance Agents and Brokers said today in a new survey.

And equally important, an overwhelming 74 percent of the brokers responding to the survey said that demand for insurance products did not improve in the fourth quarter—indicating that no end is in sight for the weak pricing.

The push for business is even cutting into the surplus lines business, one broker noted.

“Carriers had a tremendous appetite for premium,” the CIAB said the broker stated. “Standard markets are snapping up surplus lines type accounts and providing broader terms at cheaper rates,” the carrier.

The survey indicated that the key reason for the pricing pressure is “ample” capacity as carriers compete for new business.

CIAB officials said that brokers across the country reported very aggressive underwriting by carriers. “Risk selection as well as pricing has deteriorated,” reported a broker from the Southeast, the report said.

A Northeast broker said carriers are “more flexible on terms and conditions – underwriting appetite expanding.” Another said, “Terms and pricing are still excellent – competitive marketplace is driving the rate down,” CIAB officials said.

“Tough competition for new business was the name of the game last quarter as carriers chased market share in a still weak economy,” said Ken Crerar, CIAB president.

Added pressure came from clients putting the squeeze on carriers to get the best terms and rates,” he said.

“We don’t expect to see pricing turn upward until demand picks up and capacity diminishes.”

Overall, the rates for small, medium and large business accounts declined slightly less than rates in the third quarter, according to charts prepared by Barclays Capital Equity Research using CIAB survey data.

Even lines that were tougher to place in the first half of the year are getting more competitive, according to the respondents:

“After flattening for much of the second half of 2009, we saw an uptick in competitive pricing during the last quarter, particularly in the casualty lines.”

“Catastrophe property rates have dropped and terms loosened, significantly.”

“WC is still a competitive marketplace. Unfortunately, exposure is down and so are rates, which results in premiums that are a fraction of previous years.”

Republican Win in Massachusetts Could Jeopardize Healthcare Bill

In a stunning blow to President Barack Obama, Republican Scott Brown won a bitter U.S. Senate race in Massachusetts Tuesday and promised to be the deciding vote against his sweeping healthcare overhaul.

Brown's win robbed Democrats of the crucial 60th Senate vote they need to pass the healthcare bill and sent shudders of fear through Democrats facing tough races in November's congressional elections.

What once seemed an easy Democratic victory turned into a desperate scramble in the last few weeks as Brown surged ahead of Democratic state Attorney General Martha Coakley on voter fears over the economy, the healthcare bill and Obama's agenda.

Brown, a Massachusetts state senator, said he would be the pivotal 41st Republican vote against the healthcare overhaul in the 100-member Senate.

"People don't want this trillion-dollar healthcare plan that is being forced on the American people,'' Brown told cheering supporters at a Boston hotel who chanted "41'' and ''Seat him now.''

He said voters rejected the closed-door deals that were driving the healthcare debate, and he took satisfaction in proving the experts -- and Democrats -- wrong.

"They thought that they owned this seat. They thought that they couldn't lose,'' Brown said. "You all set them straight.''

Brown's upset with 52 percent of the vote in heavily Democratic Massachusetts raised the specter of large losses for Democrats across the country in November and left the party scrambling to find answers.

"Anyone who has been out on the campaign trail has seen the anger,'' Coakley, who was criticized for running a weak campaign, told a room of dispirited supporters at a Boston hotel. "I am heartbroken at the result.''

Obama, who won almost 62 percent of the state's vote in the 2008 presidential election, made a last-minute appeal in Massachusetts Sunday to try to ignite enthusiasm for Coakley's campaign to replace the late Senator Edward Kennedy, a Democratic icon and longtime champion of healthcare reform.

In Washington, Obama spokesman Robert Gibbs said the president called Brown after the result.

"The president told Senator Brown that he looks forward to working with him on the urgent economic challenges facing Massachusetts families and struggling families across our nation,'' Gibbs said in a statement.

HEALTH STOCKS MOVE HIGHER

Expectations the Brown victory could be the death knell for healthcare reform drove health insurance and drug company stocks higher Tuesday, lifting the Dow and the S&P 500 to 15-month closing highs.

U.S. Senate Democratic leader Harry Reid said he would welcome Brown to the Senate as soon as he received the paperwork from Massachusetts officials.

"I believe it would only be fair and prudent that we suspend further votes on healthcare legislation until Senator-elect Brown is seated,'' Democratic Senator Jim Webb said.

Massachusetts last elected a Republican to the Senate in 1972, but the shift could not have come at a worse time for Obama. Democrats control 60 votes in the Senate to 40 for the Republicans, and the loss of one Democrat could doom the healthcare bill.

Democratic leaders vowed to push healthcare reform through Congress despite the results, but several Democrats cautioned the party to reconsider its stance.

"It wouldn't be the worst thing in the world to take a step back and say we're going to pivot to do a jobs thing,'' Representative Anthony Weiner of New York told reporters.

Republicans said the results confirmed the public's distaste for Obama's healthcare overhaul and their anger at being ignored by Democratic lawmakers.

"The voters in Massachusetts, like Americans everywhere, have made it abundantly clear where they stand on healthcare. They don't want this bill and want Washington to listen to them,'' Republican Senate leader Mitch McConnell said.

Millions of dollars had flooded into the state to buy nonstop television advertising for both sides, transforming a relatively sleepy contest into a bitter brawl.

Less Chance For Hurricanes Ahead For Florida, Predicts GC ForeCat

Florida has less chance of being hit by a hurricane this year, while the coastal segment including North Carolina, South Carolina and Georgia will see heightened storm activity, a new study forecasted.

Making that prediction is Guy Carpenter in collaboration with WSI Corporation. The firms’ GC ForeCat update also predicted a decline in hurricane activity for the stretch of Gulf Coast running from Texas to the Alabama-Florida border.

The forecasters said in the Southeast, the region they see as most vulnerable to hurricanes coming ashore this year, the landfall rate is 0.70.

They explained that the 0.70 figure representing the mean number of landfalling tropical cyclones in that region is well above the 1951-2007 average landfall rate of 0.41.

For the Northeast region, meanwhile, a forecast of 0.29 mean rate of landfall has been calculated for 2010, which is no change from the long-term average.

The Florida coastline region average landfall rate will drop to 0.46 from 0.49 and the Gulf section will lessen to 0.59 from 0.66.

The GC ForeCat was first developed for the 2008 hurricane season. The companies said it uses hurricane landfall data from 1951-2007 with corresponding climate and ocean data, representative of North Atlantic oscillation, tropical Atlantic water temperatures, and the El Niño and La Niña currents.

“The skill of this forecast has been established using historical storm seasons and ‘hold-one-out’ analyses,” the prediction statement said.

Florida High Court: Hospitals Must Tell Patients of Lawsuit Limits

The Florida Supreme Court says hospitals must warn patients about a state law that bars malpractice lawsuits for birth-related neurological injuries.

The justices last week ruled hospitals that fail to do so can then be sued even if a patient's doctor provided a notice required by a law designed to reduce malpractice cases against obstetricians.

Properly noticed patients cannot sue but receive limited no-fault compensation if something goes wrong.

The ruling came in two cases involving Bayfront Medical Center in St. Petersburg.
It reversed lower court rulings that said hospitals are covered by doctors' notices.

The justices said the law clearly requires hospitals as well as doctors to notify patients.

Carib Risk Pool Will Pay Haitian Government Less Than $8M

The Caribbean Catastrophe Risk Insurance Facility said Haiti’s government as a member of its risk pooling facility will receive a little under $8 million for earthquake damage.

Yesterday the Eqecat catastrophe risk modeling firm in Oakland, Calif., estimated economic damages from Tuesday’s quake to be “in the hundreds of millions of dollars.”

CCRIF said the amount it will pay Haiti is approximately 20 times the country’s $385,500 premium for its earthquake coverage policy taken out as part of its disaster risk management strategy.

Based on calculations from the preliminary earthquake location and magnitude data, the pool said the 7.0 quake was of sufficient size to trigger the full policy limit for the earthquake coverage, effecting payment after a 14-day waiting period.

Nikhil DaVictoriaLobo, a Swiss Re Public Sector vice president, explained by e-mail that while the CCRIF policy limit for Haiti was relatively small, it demonstrates clearly how parametric insurance solutions enhance the ability of governments to deal quickly with the onslaught from catastrophes and reduce at least some of the associated human devastation.

Swiss Re as part of its Public Sector client focus, collaborates with the CCRIF to deploy country risk management practices in the Caribbean basin (including Haiti) as well as develop new parametric products for the region.

According to Mr. DaVictoriaLobo his company advocates pro-active, cohesive risk management plans for CCRIF that include a combination of prevention measures and risk transfer instruments and advance funding sources as a powerful antidote to alleviate the pain catastrophes.

CCRIF said in addition to providing parametric catastrophe coverage it has been assisting the Caribbean region to become disaster resilient by working with partner organizations such as the Caribbean Institute for Meteorology and Hydrology (CIMH) and the Caribbean Disaster and Emergency Management Agency (CDEMA) to provide data and other technical assistance for better planning for, response to, and recovery from natural catastrophes.

The pool noted that CIMH is currently running detailed weather forecast models over Haiti to identify areas prone to landslides from flash flooding in the areas that have been affected by the earthquake “and will facilitate proactive action.”

CCRIF said it is “hopeful that the rapid payment of funds under Haiti’s policy will assist the government and people of Haiti in addressing immediate needs as they begin the recovery and rebuilding process.”

CCRIF is owned, operated and registered in the Caribbean for Caribbean governments. It is designed to limit the financial impact of catastrophic hurricanes and earthquakes to Caribbean governments by quickly providing short-term liquidity when a policy is triggered.
The pool describes itself as the world’s first and, to date, only regional fund utilizing parametric insurance, giving Caribbean governments the unique opportunity to purchase earthquake and hurricane catastrophe coverage with lowest-possible pricing.
CCRIF said it “represents a paradigm shift in the way governments treat risk, with Caribbean governments leading the way in predisaster planning.

Sixteen governments are members of the fund. In 2007, CCRIF said it paid out almost $1 million to the Dominican and St Lucian governments after the Nov. 29, 2007 earthquake in the eastern Caribbean, and in 2008, CCRIF paid out $6.3 million to the Turks & Caicos Islands after Hurricane Ike made a direct hit on Grand Turk.

Insurance Information Institute noted that Haiti’s private insurance market is very small.

“Haiti is the poorest country in the Western Hemisphere, and poor countries tend to purchase very little property insurance coverage,” said I.I.I. President Robert P. Hartwig in a statement.

“The fact that there is very little information about Haiti’s private insurance market suggests that the market is very small—likely not more than a few tens of millions of dollars,” added Mr. Hartwig. “Consequently, private insurer losses from the 7.0 temblor on Tuesday, January 12, will be modest and will not have a material impact on global insurance and reinsurance markets.”

Beyond earthquakes, Haiti’s insurance markets face challenges from frequent hurricanes, severe floods, landslides and mudslides, poor public safety infrastructure, and the fact that the country has a history of political and civil unrest, Mr. Hartwig noted.

He mentioned that some multinational firms with facilities in Haiti may be insured for losses under blank policies that respond to losses wherever in the world they occur.

London-based Axco Insurance Information Services in a December 2009 report said concerning Haiti’s property and casualty market: “Some 90 percent or more of Haiti’s insured risks are situated in Port-au-Prince, but no information is available about aggregate sums insured.”

Lacking official data, Axco estimated the total non-life premium income written in Haiti at $19 million in 2008, with the non-life category consisting primarily of p&c policies for auto, homeowners and commercial insurance.

The huge amount of fatalities and property damage in Haiti is drawing comparisons to the May 2008 southwest China earthquake that killed 87,449 people, according to Swiss Re.

Like Haiti, China had little private insurance coverage to offset the severe economic damage the nation incurred. Swiss Re estimated that the Sichuan Province quake generated $366 million in insured losses, even though the overall economic damages to China as a whole were equal to $125 billion.

I.I.I. noted that earthquake damage in the U.S., other than fires, is not covered under standard homeowners or business insurance policies, but coverage is usually available for earthquake damage in the form of a supplemental policy.

P&C Rates To Suffer In Shrinking Economy, Experts Warn

The moribund economy will combine with zero interest rates to deliver a one-two knockout punch to property and casualty insurer bottom lines, with a significant turnaround in rates and premium volume unlikely before next year at the earliest, industry leaders predicted here.

Indeed, even though “the worst of the financial crisis is over,” according to Jay Gelb, a director at Barclay’s Capital, “property and casualty insurers are not going to see premium growth anytime soon.”

Mr. Gelb, part of a panel of analysts speaking here yesterday at the annual P&C Insurance Joint Industry Forum, said that most insurers are “likely to see a decline in premiums due to continuing economic woes.” He cited “shrinking payrolls, failing businesses and a declining number of business startups” as among the factors dampening premium growth.

“Even in 2011, you can expect very moderate growth ahead,” added Joe Guastella, a principal and global insurance leader at Deloitte. “It will be a pretty stagnant market for the foreseeable future.”

Mr. Guastella did note that he expected “some individual companies to experience organic growth, mostly by sticking to their core competencies”—citing “auto writers who expand into new states, or small commercial lines carriers branching out into new industry niches. But you won’t see any big growth for the industry overall.”

The mood was similarly restrained among a second panel of industry CEOs at the Forum, where 16 industry associations gather annually to discuss the state of the p&c business.

“Let’s face it, the economy is just not very robust right now,” said Thomas Motamed, chair and chief executive officer of CNA. “Exposures are down, and you have tougher buyers out there looking to lower their own costs of insurance. That makes for a challenging market.”

Patrick Thiele, president and CEO of Partner Re, blamed the “unintended consequences” of keeping interest rates near zero for the pressure on insurance company bottom lines. “Going that low [on interest rates] was necessary to save the banking industry and reboot the economy, but it has a negative effect on insurance investment portfolio returns.”

He noted that with reinsurance rates flat at the most recent renewals, there is even less pressure on primary carriers to raise their rates in a shrinking economy.

Mr. Motamed set forth the economic recovery that must play out before the p&c insurance sector will see any renewed growth in premiums.

“Unemployment has to come down and payroll must rise,” he said. “Banks need to loosen up and lend more money to help businesses start up and expand. The housing inventory has to drop so people will start buying homes again. Retail sales need to pick up.”

In the meantime, he added, “you’re likely to see more pricing discipline on new business,” as insurers must deliver an underwriting profit to keep their bottom lines in the black in the absence of significant investment returns.

Sandra Parrillo, president and CEO of Providence Mutual, agreed that “we’ll need sustained economic growth to see growth in our industry. As demand for our products falls in this struggling economy, competition for the remaining exposures intensifies.”

Describing the p&c business as a “mature market,” Ms. Parrillo said “there’s not a lot of new business out there,” so that “to retain market share, a lot of our growth will come from stealing business from our competitors—especially for highly desirable business,” putting downward pressure on pricing.

Mr. Gelb estimated that the p&c industry is “overcapitalized by 20 percent,” meaning there is more capacity in the market than demand for it. “The biggest challenge for carriers will be what to do with all that excess capital. It will take time to work that excess off. It will not all be burned off in stock buybacks. You’re going to need to see some losses [on underwriting] before you’ll see any turnaround in rates.”

However, Scott Harrington, a professor of insurance and risk management at the Wharton School, warned that he has “seen excess capital drained in a very short time” by major catastrophes. “So our current situation could be deceiving.”

P/C Industry Must Strengthen Underwriting to Counter Weak Investments

The most recent reports of property/casualty insurers indicate a return to profits, thanks in large measure to a quiet hurricane season. But behind the rosy reports is a thorny problem — lower investment income.

According to Dr. Robert Hartwig, president and economist at the Insurance Information Institute, insurers' investment income fell 50 percent in 2008 and has been down again in 2009, so it's something insurers have got to get used to.

“It's dropping again in 2009 and those numbers aren't going to rebound tremendously over the next several years. The reason for that is because interest rates are so much lower. The Federal Reserve is committed to keeping interest rates low. And insurers are going to invest in the lowest risk assets. So they're just not going to generate that much in the way of investment return for years to come,” he told Insurance Journal in a recent interview.

There’s also another reason investments will be down.

“They've also de-risked their portfolios to a significant extent. So they're not riding the stock market recovery as much as, perhaps, they rode it on the way down. So this is all going to temper investment earnings. Not just last year, not just in 2009, not just in 2010, but beyond.”

This investment outlook puts the pressure on insurers to appropriately price and underwrite their products.

“They have just two sources of revenue. They have premium and they have investment earnings,” he said. “The expected losses remain the same, whether we're talking about a hurricane or an auto claim or a medical malpractice claim. The earnings on investments are going to be impacted by the current investment environment, but the losses are not.”

So the question becomes whether insurers are incorporating the new investment reality into their pricing.

“We've not seen that happen yet. Ultimately that reality, will have to be reflected,” answered Hartwig.

He added that it’s important that regulators, who monitor and in many cases approve rates, understand this changed investment environment as well. They have grown accustomed to insurers keeping premiums lower by offsetting losses with investment returns.

“Today, the industry is earning less in investment earnings than it was 20 years ago. And so that premium to meet the expected losses has to come from someplace,” Harwtig said.

Capital Availability

While the outlook for investment income is a concern, Hartwig has a more positive assessment of the availability of capital in the industry these days, an availability that could become important should a major catastrophe drain insurers’ coffers. He said capital markets have thawed from just a year ago.

“As we approach the end of 2009 and move into 2010, the capital markets have shown once again that they do have an appetite for risk and I do believe that if the industry needed to raise the sums that it raised in the wake of Katrina, or the wake of September 11th-- where the industry raised on the order of $25 to $30 billion plus after each one of those events within a short span of time-- it would be able to do it today. Maybe at somewhat higher costs, and maybe not quite as quickly, but it would be able to do it.”

That, he says, is a big change from a year ago, in the fourth quarter of 2008 or even in the first quarter of 2009, where credit markets and capital markets were effectively frozen and it would have been very difficult for the industry to raise much capital on short notice at reasonable terms.

“So, we did dodge a bullet,” he said.

Uneven Recovery

As nation’s economic recovery unfolds, it is likely to be uneven across the country and within markets, presenting both challenges and opportunities for the property/casualty insurance industry, according to the insurance industry economist.

Hartwig believes the recovery is real. There are encouraging signs including slight growth in the gross domestic product (GDP) and a slowdown in unemployment claims. The economy still needs more time to recover from what has been a very deep recession.

Hartwig noted that the recovery has taken hold first on Wall Street more than anywhere else.

“We've seen the stock market up more than 50 percent since it's March lows. We're starting to see banks and insurance companies report profits whereas a year ago they were reporting significant losses,” Hartwig said.

Yet there is a disconnect between Wall Street and Main Street.

“We're seeing a lot of bankruptcies of small and medium sized businesses. We're seeing difficulty for small businesses that want to expand or hire new workers to obtain credit from banks,” he said.

According to Hartwig, employment typically lags behind Wall Street and other indicators for a quarter or two before it begins to improve.

“So if the recession officially ended at the end of June or the end of July, we could expect the unemployment rate to continue to rise through the first quarter of next year and potentially into the early part of the second quarter, “ he said.

Regional Recovery

What’s happening on Wall Street versus Main Street is not the only gap. Just as some parts of the country were harder hit by the recession, some regions will be slower to recover than others, according to the III leader.

“It's going to be a very uneven recovery across the country. Some parts of the country were hit much harder by this economic downturn than others, particularly those parts of the country that benefited from the economic boom, specifically in housing,” he said. “So states like California, Florida, Nevada, Arizona, are going to be slower to recover because they went so deeply into the recession; they suffered the worse of the collapse. For as home price are stabilizing or even increasing in some parts of the country now, places that benefited the most from the housing boom are still seeing their prices fall. So states like California may not see a recovery begin until two years after the official end of the recession in the summer of 2009. “

Some states are doing quite well already.

“Many of the resource intensive, and natural resource intensive, energy intensive states, basically in a swath from Texas up through the agricultural heartland, through the Mountain states, up to the Canadian border, these states are doing rather well. Most did not participate in the boom, but they're also a natural resource intensive and with the high price of natural resources throughout most of this economic downturn, they've done quite well, “ he said.

Future Economy

While a recession destroys many businesses, new businesses and even industries can grow out of a downturn, too. Hartwig suggests there are several industries that are growing and will need insurance solutions in the years ahead.

One promising sector is energy.

“Ten years ago, nobody was insuring windmills, hardly, and today they are. No one was insuring arrays of solar panels in the desert, and today they do. The solutions are there and insurers are willing to participate,” he said.

The growth won’t just be in new or green energy. “Traditional energy as well. We're going to continue to have increase in demand for energy. No matter what you hear about the green revolution, the majority of energy demands in the future are going to be met through fossil fuels, particularly through natural gas,” Hartwig told Insurance Journal.

According to the III chief, insurers and brokers with a construction focus stand to gain from government funding on infrastructure projects.

“We're going to have to continue to develop the infrastructure. We're talking about big demand. But we're also talking about a lot of funds being funneled through government and we're talking about infrastructure projects.”

Finally, Hartwig is also high on export-oriented risks, including those in manufacturing, agriculture and natural resources that benefit from the low dollar. “[T]he low dollar, while it might be a bit of a record low against the euro right now, and it may come off of that low, the reality is that the low dollar's here to stay for quite some period of time. That's going to benefit export-oriented businesses,” he said.

Resource Box

Watch excerpts from the video interview with Dr. Hartwig or listen to the entire interview in audio on Insurance Journal TV at www.insurancejorunal.tv

#1: Invisible Hard Market Nowhere To Be Seen

Back in January, Brian Duperreault, president and CEO of Marsh & McLennan Companies, said the property and casualty industry was entering its “first ‘invisible’ hard market,” in which prices would begin to rise—but because of shrinking insurable exposures, little positive impact would be seen in top- and bottom line results.

Nearly a year later, insurers and their agents and brokers are still looking intently for the first visible signs of any market hardening, as premium rates kept falling for most buyers and lines of business.

A big part of the problem is we’re stuck in the worst economic tailspin since the Great Depression. Companies are going bankrupt, closing facilities, scaling back production and laying off millions. That means less demand for standard insurance products such as property, liability and workers’ compensation coverage.

Still, Mr. Duperreault expected insurance supply to drop faster than shrinking buyer demand, given the “staggering investment losses” absorbed by many leading carriers. Add to that the fact that reinsurance rates were rising, and the stage was set for a turnaround in primary company pricing.

However, as it turned out, most carriers were able to keep writing business at reasonable prices, and shrinking demand forced many to cut rates to retain the good business they still had on their books.

Add to that a thankfully mild hurricane season—the calmest in 12 years, with only three Atlantic basin storms, according to the Insurance Information Institute—and you end up with a stubbornly soft commercial coverage market.

Price cuts have moderated—the average commercial premium fell 5 percent in October, compared to 9 percent in December 2008, according to MarketScout’s Market Barometer survey. But rates are still falling for most. Unless an account has catastrophe-exposed properties or claims related to the Madoff Ponzi scheme or the subprime mortgage meltdown, buyers are sitting pretty.

MarketScout CEO Richard Kerr back in June chastised an anonymous “terrible trio” of carriers for being “irresponsible underwriters.” He said “every sensible economic indicator tells us rates should be increasing, yet there are still three large, admitted, publicly traded insurers clamoring for premium, seemingly at any rate and continuing to prolong the soft market.”

“Even the E&S market is refusing to chase rates down, sitting on the sideline as the terrible trio slash each other to bits,” Mr. Kerr added.

“Once these irresponsible underwriters are reined in, we should be on the way to rate increases,” he said. “Our guess is prudent insurers are waiting to pick up the fallout when the terrible trio have their day of reckoning.” However, he warned, “until that occurs, the soft market will continue.”

At the time, Mr. Kerr predicted that “the turn will come by year-end because all but the terrible trio are making appropriate underwriting decisions.”

Yet here we are in December, with no turn in sight (and still with no clue just which carriers Mr. Kerr was talking about).

Last month, NU’s Mark Ruquet reported that “the soft market direction seems to be defying business logic,” citing a report from Advisen, titled “Planning for 2010: The Recession Will Keep Commercial Insurance Premiums Under Pressure.”

“Like the zombies in the classic horror film ‘Night of the Living Dead,’ the soft insurance market should be dead and buried, but it continues to lurch on, terrorizing underwriters and brokers,” wrote Advisen Executive Vice President Dave Bradford.

No wonder the p&c industry’s first-half income was down nearly 60 percent, despite an improvement in underwriting losses. Net written premium volume fell by 4 percent—down about $9.4 billion. The outlook for 2010 doesn’t look much better for insurers.

“If a hard market is coming, it’s up the road a bit,” said Ken A. Crerar, president of the Council of Insurance Agents and Brokers, in CIAB’s second-quarter report.

“Suppressed demand and appetite for business continued to drive competitive pricing in the market during the third quarter,” he said. “It was still very much a buyer’s market as carriers chased market share. A significant upward turn in pricing remains elusive for the foreseeable future.”

Health Insurers Seek Tax, Profit Changes in Health Reform Bill

Health insurance lobbyists are pushing lawmakers to eliminate caps on profits and other administrative spending and delay a hefty, industry-wide tax under the massive healthcare reform legislation being finalized in Congress.

Health insurers, which include companies such as Aetna Inc., Humana Inc. and UnitedHealth Group Inc., became ripe targets for reform as President Barack Obama and fellow Democrats slammed everything from premium costs to the denial of care.

Bills passed by the Senate and the House last year would increase regulation of the industry. They also make it mandatory for people to purchase health plans, a move that could bring insurers roughly 30 million more customers.

Lawmakers are now working to reconcile the two bills into one proposal for Obama to sign into law. But significant differences remain, and Karen Ignagni, head of industry lobby America's Health Insurance Plans, said insurers are still pushing for changes before a final bill passes.

Congress needs to ensure that there is "a transition that is smooth, that is not disruptive, that doesn't inadvertently ... increase costs,'' Ignagni told reporters Thursday.

Both bills set how much insurers can dedicate to medical care versus administrative costs, profits and other areas, an allocation known as the medical-loss ratios. The ratios are closely watched by Wall Street as a sign of profitability.

The House bill would require that at least 85 percent of revenues from patient premiums go toward care, while the Senate measure would let some small group and other insurers devote 80 percent. Companies would have to report how they allocate their money and offer consumers rebates as necessary.

Insurers and investors are concerned because the fixed limits by Congress would cap profits and could significantly alter how companies operate, although advocates argue the move protects patients by ensuring enough funds go to paying for medical care.

'UNINTENDED CONSEQUENCES'

Ignagni said there is no problem with reporting spending but that setting medical-loss-ratios could raise long-term costs by prompting insurers to put off needed technology investments that boost efficiency.

"We have no problem with disclosure, but there are unintended consequences,'' she said, adding that profits were not an issue for an industry which she said sees just 2.5 percent in profits on average.

The Senate bill also includes a $70 billion tax spread out over 10 years.

"I think Congress needs to look very carefully at this tax,'' which takes effect in 2011 but would have to start being assessed as early as this year, Ignagni said.

Insurers face numerous other taxes, such as the tax on more costly "Cadillac'' health insurance plans, she said. All told, insurers face as much as $225 billion in fees and taxes through 2019, Ignagni said.

Both the profit cap and the taxes could raise costs for consumers and some smaller employers before the bulk of reforms take effect in 2013 or 2014, Ignagni said.

Some members of Congress seem open to reallocating some of the taxes over the 10 years, she added.

But Massachusetts Democrat Senator John Kerry said while the Cadillac tax must be changed to avoid hurting middle class consumers, it must remain in any final bill to help reduce health care spending.

"So let's fix it, not nix it,'' Kerry wrote in the Huffington Post blog. "I believe the final health care reform bill will include appropriate adjustments to preserve its cost containing benefits while increasing the fairness of this provision.''

It is not clear what changes Democratic leaders in Congress will make as they close in on a final deal to blend the two bills. Lawmakers aim to finish the legislation before Obama's State of the Union address to Congress in early February.

"I think more can be done in the transition to make sure there are no unintended disruptions in coverage or cost increases,'' Ignagni said.

Shares of health insurers have fluctuated widely since reform took the political spotlight last February. On Thursday, stocks closed up 3 percent on the Morgan Stanley Healthcare Payor index and 3.7 percent on the S&P Managed Health Care index.

Key Differences in Senate, House Health Bills

Democrats in the U.S. Congress are preparing to merge the two health care bills passed in 2009 by the Senate and House of Representatives into a single bill.

This compromise bill would have to be passed by both chambers of Congress before being sent to President Barack Obama to sign into law. Health care reform is Obama's top legislative priority, and the Democrats are aiming to overcome unified Republican opposition.

Here is a detailed summary of the major differences between the House and Senate versions that Democrats must resolve.

Insurance Market Reform

Both bills would bring insurance market reforms barring insurers from excluding people for pre-existing conditions and preventing them from arbitrarily dropping policy holders.

Both bills would create insurance exchanges in which small businesses and individuals without employer-sponsored health benefits can shop for coverage. The Senate bill would create state-based exchanges. The House bill would create a national exchange but would allow states to operate state-based exchanges if they meet minimum requirements.

The House bill would allow insurers to charge older people up to twice the amount they charge younger policy holders. The Senate bill would allow insurers to charge older people up to three times what they charge younger people.

The Senate bill would allow young people to stay on their parents' insurance plans until the age of 26. The House bill would allow such coverage until age 27.

Both bills would place limits on how much insurers can spend on administrative costs and profits. The Senate bill would require insurers to spend at least 85 cents of every premium dollar on medical care in small group markets and 80 cents in large group markets. The House bill would require insurers to spend at least 85 percent of premiums on care.

Public Option

The House bill would create a new government health insurance plan to compete with private insurers. This “public option'' would have to meet the same coverage requirements as private insurers. The Senate bill has no public option.

The Senate bill would direct the U.S. Office of Personnel Management, which oversees health policies for 8 million federal workers and their families, to contract with private insurance companies to offer policies on the exchanges.

Both bills also would create nonprofit cooperatives to provide medical coverage to members.

Financing

Another big difference between the two bills is how they are financed. The House bill would impose a 5.4 percent surtax on individuals earning more than $500,000 a year and couples making more than $1 million. It also would raise money by imposing a 2.5 percent excise tax on medical devices.

The Senate bill includes a 40 percent excise tax on high-cost health insurance plans. It also would raise payroll taxes for Medicare, the government health insurance plan for the elderly and disabled, to 2.35 percent from the current 1.45 percent for individuals earning $200,000 or more annually and for couples earning $250,000 or more. The Senate bill includes special fees on insurers, drug companies and medical device makers and would impose a 10-percent tax on indoor tanning.

Abortion

Abortion could be another contentious issue. Both bills would bar the use of federal funds to pay for an abortion.

The House bill contains tougher language that would require anyone seeking coverage for elective abortions to buy separate insurance riders.

The Senate bill would let states opt out of including plans with abortion coverage on the exchanges and would require anyone with abortion coverage to write two separate premium checks -- one for the abortion coverage and one for the rest.

Medicaid Coverage

The Senate bill would make Medicaid, the government health insurance program for the poor, available to everyone with incomes up to 133 percent of the poverty level. The House would expand the Medicaid program to everyone with incomes up to 150 percent of the poverty level. The poverty level in 2009 for an individual was $10,830 and for a family of four $22,050. Many states have eligibility requirements below that level.

Coverage Mandates

Both bills would require most individuals to obtain health insurance and would impose penalties on those who do not. The House bill would impose a 2.5-percent penalty tax on income up to the average cost of an insurance policy. The Senate would phase in a $750-per-person annual penalty up to $2,250 per family or a penalty of 2 percent of taxable income, whichever is greater. The full penalty would take effect in 2016.

Employer Mandates

The House bill would require employers with payrolls above $750,000 to provide health insurance to workers. Those who do not provide insurance would face a penalty of 8 percent of payroll. Employers with a payroll between $500,000 and $750,000 would pay fines on a sliding scale of 2 percent, 4 percent and 6 percent of payroll.

The Senate bill has no such employer mandate. But large firms with more than 50 workers would have to pay a fine of $750 annually per worker if any of their employees obtain federally subsidized coverage on the exchange.

Workers with employer-sponsored plans with costs deemed unaffordable — exceeding 9.8 percent of salary — may drop that coverage and purchase federally subsidized insurance on the exchange. In those cases, the employer would pay a fine up to $3,000 per worker receiving the insurance subsidy.

In some cases the Senate bill would require employers with health plans to provide cash vouchers to lower-income workers to obtain insurance on the exchange.

Most Property Reinsurance Rates Down at January Renewal As Capital Rebounds

Reinsurance rates across most lines of property catastrophe business declined at the Jan. 1, 2010 renewal, according to a briefing by Guy Carpenter & Co., LLC.

Guy Carpenter’s World Catastrophe Rate on Line (ROL) Index declined by six percent at the Jan. 1, 2010 renewal, as the reinsurance market recovered and swiftly recapitalized in the wake of the global financial crisis and large reduction in catastrophe losses.

For the U.S., reinsurance rates declined from six to 11 percent on average. Rates in the tornado and hail-prone Midwest proved an exception to the downward trend.

The report, Rates Retreat as Capital Rebounds: Global Reinsurance Renewals at January 1, 2010, covers regional developments as well as key influences and trends, such as catastrophe bonds and mergers and acquisitions activity.

Chris Klein, global head of Business Intelligence at Guy Carpenter, said the current reinsurance marketplace is competitive and strong but the environment heading into the new year is not without its challenges.

“A combination of factors – including the rally in global financial markets, relatively low catastrophe losses in 2009 and lingering recessionary effects on demand – has resulted in an excess of supply and heightened competition at this year’s January 1 renewal. As a result, what we saw was an unusually slow renewal, in which a number of contracts did not close until very late in the season, as buyers sought to gain maximum pricing advantage,” Klein said.

“As we move into 2010, it’s safe to say that the property/casualty reinsurance market has weathered the global financial crisis and emerged in a relatively strong position, with abundant capital and ample capacity for most lines of business. At the same time, the environment in which reinsurers operate will continue to be influenced by global economic conditions as much as underwriting decisions, and these macroeconomic factors will continue to warrant close attention.”

Among the highlights of the Guy Carpenter report:

U.S. PROPERTY CATASTROPHE

• Risk-adjusted catastrophe prices in the U.S. decreased by an average of six percent, though the picture is somewhat complicated by recent adjustments to catastrophe models that have decreased predicted losses for earthquake and wind perils. Factoring in modelling adjustments, rates declined by as much as 11 percent on average.
• The significant exception to the general downward trend in pricing is programs with significant tornado/hail exposure in the middle of the U.S. Many of these programs sustained losses in 2009, and as margins traditionally have been very competitive, pricing has adjusted upward in response to the loss activity.

EUROPEAN PROPERTY CATASTROPHE

• Catastrophe pricing in Continental Europe was flat to 5 percent lower, despite a number of localized losses in a year of above-average weather-related events.
• Windstorm Klaus, which hit France and Spain in January, was the region’s most severe weather event, causing first layer prices of programs in France to rise by ten percent on average. Overall, weather-related catastrophe activity in Europe was above average.
• Austria’s severe hailstorms led to a fourth successive year of frequency losses that resulted in restricted capacity and price increases of up to 20 percent to 30 percent.

UK PROPERTY CATASTROPHE

• UK property catastrophe rates declined between 5 percent and 10 percent, while risk excess prices were flat to down 15 percent, subject to loss experience.
• The UK continues to be an attractive market to reinsurers due to its profitability over time. Though UK property catastrophe supply tends to be finite, a number of new markets entered to supply fresh capacity.

RETROCESSION

• Treaty retrocession saw a modest increase in capacity, as two new underwriters in the Lloyd’s and Bermuda markets entered the market, while a number of existing underwriters showed an increased appetite.
• Primarily because of satisfactory capacity and changes to the catastrophe models, industry loss warranty (ILW) prices fell by as much as 30 percent, though there were few major purchases due to the focus on Ultimate Net Loss (UNL) placements by clients.
• Several potential new suppliers are poised to enter the market should a large loss turn pricing significantly.

CASUALTY

• Rates for U.S. casualty lines were flat to down 10 percent over the past two renewal cycles. Some pockets of resistance existed, with rates for financial institutions professional indemnity, particularly in London, showing single digit increases.
• In Europe, motor liability reinsurance rates continued to experience flat to 10 percent increases on working excess layers, depending on experience.
• Underlying concerns about increases in loss cost projections, due principally to medical care inflation, have been offset by the wide availability of excess reinsurance capacity.
• Underlying insurance rates for product liability are largely unchanged, but the effect of the recession has reduced turnover in most sectors except pharmaceuticals and medical devices, which in turn impacted reinsurance revenues on the main commercial/industrial liability placements.

AVIATION AND MARINE

• Rate changes for aviation risks were essentially flat. Increases were largely dependent on size of loss, exposure changes and overall program premium banks.
• Some aviation sectors (such as commercial helicopters) faced increases following a spate of losses, while others (such as good quality corporate aircraft risks) continued to see reductions.
• Marine rates were down by an average of five percent. Capacity is growing and ample, with widespread price-cutting, particularly for non-Gulf of Mexico business. Absent any significant losses, downward pressure on marine rates is expected to continue into 2010.

OTHER KEY TRENDS AND INFLUENCES

• Eighteen new catastrophe bond issues came to market in 2009, easily exceeding the ten issues reported in 2008. The cat bond market will continue to provide an increasingly attractive and worthwhile supplement to sponsors’ risk transfer programs in 2010.
• Mergers and acquisition (M&A) activity – both tactical and strategic – regained some momentum in 2009, as insurers turned to the capital markets to address a wide range of strategic and tactical needs.
• Macroeconomic trends exerted a substantial effect on reinsurance capital and pricing, with asset-side movements and investment returns the greatest drivers of sector profitability and capital adequacy in 2009.
• Since 2005 most carriers’ earnings have been enhanced by reserve releases, particularly in accident years. This trend is not expected to continue, however, and a number of indicators point to a declining benefit from reserve releases in the future.
• Inflation could become an issue over the longer term, particularly for longer-tail writers whose premiums written today may be less able to cover inflated claims in the future.

Guy Carpenter is a reinsurance specialist and a part of the Marsh & McLennan Companies. Both the report and downloadable charts are available at www.gccapitalideas.com. Guy Carpenter’s website address is www.guycarp.com.

Obama Labor Chief Taking Aggressive Approach to Workplace Safety

Soon after she became the nation's labor secretary, Hilda Solis warned corporate America there was "a new sheriff in town.''

Less than a year into her tenure, that figurative badge of authority is unmistakable. Her aggressive moves to boost enforcement and crack down on businesses that violate workplace safety rules have sent employers scrambling to make sure they are following the rules.

The changes are a departure from the policies of Solis' predecessor, Elaine Chao. They follow through on President Barack Obama's campaign promise to boost funding for the Occupational Safety and Health Administration, increase enforcement and safeguard workers in dangerous industries.

Solis made a splash in October when OSHA slapped the largest fine in its history on oil giant BP PLC for failing to fix safety problems after a 2005 explosion at its Texas City refinery.

Garnering less attention, she just finished hiring 250 new investigators to protect workers from being cheated out of wage and overtime pay. She also started a new program that scrutinizes business records to make sure worker injury and illness reports are accurate. And she is proposing new standards to protect workers from industrial dust explosions -- an effort the Bush administration had long resisted.

Some business groups say they prefer a more cooperative approach between government and businesses -- what the Bush administration called "compliance assistance.''

"Our members are concerned that the department is shifting its focus from compliance assistance back to more of the 'gotcha' or aggressive enforcement first approach,'' said Karen Harned, executive director of the National Federation of Independent Business' small business legal center.

Other business leaders point out that the rate of workplace deaths and injuries actually fell to record lows in the previous administration, while the agency also helped employees collect a record amount of back pay for overtime and minimum wage violations. Chao has claimed that success was the result of cooperating with businesses to help them understand the myriad regulations.

Keith Smith, a spokesman for the National Association of Manufacturers, said his members "want to build upon that progress and recognize what's working.''

But a November report from the Government Accountability Office suggested there is widespread underreporting of workplace safety issues. Investigators cited evidence that some employers pressure workers not to report illnesses and injuries and urged OSHA to be more aggressive in verifying business records.

Labor Department spokesman Jaime Zapata said the idea of helping businesses understand the rules remains an important part of the agency's strategy, along with stepped-up enforcement. Solis plans to hire 100 new OSHA inspectors next year.

"Compliance assistance was not a creation of the last administration,'' Zapata said.

The changes have drawn praise from organized labor leaders who spent millions to help get Obama elected. Solis, a former California congresswoman and daughter of immigrant parents who were both union members, is a favorite of labor unions and a longtime advocate for workers' rights.

"We will not rest until the law is followed by every employer, and each worker is treated and compensated fairly,'' Solis said last month as she described a new national public awareness campaign to make sure workers know their rights on the job.

The massive fine against BP certainly caught the public's attention, but other businesses are also paying a steep price for violating safety rules.

Two months into the new fiscal year, OSHA has already cited six companies for "egregious'' violations that carry the highest penalties. There were only four such egregious cases in all of the previous year.

Solis said her agency this year will tackle 90 new rules and regulations next year. One change would give workers more information about how their pay is computed. Another would make employers disclose whether they sought advice from anti-union labor consultants.

Glenn Spencer, executive director of the U.S. Chamber of Commerce's Workforce Freedom Initiative, said Solis so far has been willing to listen to some of his group's concerns. But he worries most about the possibility that Labor officials will try to revive costly ergonomics rules. Such rules would force businesses to redesign work spaces to protect employees from repetitive stress injuries.

One of the first acts of the Bush administration was to rescind ergonomics rules that were passed in the Clinton administration. Solis supported the rules at the time, and has not spoken about plans to revive them.