U.S. Targets Crop Insurers' Profits

The federal government wants to save taxpayers billions of dollars by reducing spending on crop insurance after years of big profits by insurers, but the industry claims the reductions could hurt rural areas.

The U.S. Department of Agriculture is negotiating a new deal with crop insurance companies, which posted profits of 26.4 percent last year.

Crop insurance covers part of farmers' losses when their crops fail and helps them get credit for spring planting because lenders know they will be able to repay their loans. While participating farmers pay premiums, the government subsidizes the program to keep it affordable. Last year, it paid crop insurers $3.8 billion.

"The federal crop insurance program is an important part of the farm safety net, but costs have escalated to an unsustainable level and we need to take steps protect taxpayers,'' U.S. Agriculture Secretary Tom Vilsack said.

Earlier this year, the U.S. Department of Agriculture proposed cutting $8.4 billion in spending on crop insurance over 10 years. Its first revision brought that down to $6.9 billion. The agency is now preparing its third draft, which Bill Murphy, administrator of the USDA's Risk Management Agency, expects to release in early May.

A study done for the Risk Management Agency found the crop insurance industry's profit in 2009 was the second-highest in 21 years and more than double the 10.7 percent the agency considered "reasonable'' for last year. Over the past 21 years, the study said, the companies averaged a 17 percent return, compared with a "reasonable'' rate of 12.7 percent.

The agency also said government payments to crop insurance providers have more than doubled in the past three years while the number of policies hasn't really grown.

"If you look back since the mid-1990s, the companies have only lost money in this program one year, 2002, and it wasn't that much of a loss,'' Murphy said, noting a 2002 loss of 0.5 percent. "They certainly have been making far more than they've been losing.''

Brian Riedl, a budget analyst at the conservative Heritage Foundation, said he doesn't like the government telling people what a reasonable profit should be, but the crop insurance system needs reform.

"I have no sympathy for those who are making a killing off the crop insurance program on the backs of the taxpayers,'' he said.

Farmers say crop insurance gives them crucial protection against unpredictable weather.

Dale Shelley, who grows corn, soybeans, oats, alfalfa and grass seed on about 2,700 acres about 60 miles northwest of Minneapolis, said insurance helped him through a drought and hail damage in 2008. Without it, he would have had to borrow money to buy seed and fertilizer in 2009 instead of paying cash.

"The government wants cheap food,'' Shelley said. "To raise cheap food, we have to have a guarantee of something to keep us afloat.''

Insurers said they're not simply trying to guarantee themselves fat profits, although they acknowledge they're doing well.

Bob Parkerson, president of National Crop Insurance Services, a trade group based in Overland Park, Kan., said the companies are legally required to maintain huge reserves. That's because they have to pay out large sums when there are widespread crop failures, he said.

The industry employs some 18,000 people, mostly in rural communities, and those jobs could be at risk if the federal government cuts too deep, Parkerson said. That could mean too few employees to serve farmers well, he said, adding that writing policies and handling claims for crop insurance is much more labor intensive than for auto or home insurance.

Policies must be rewritten every year, so if there are fewer agents, they might not have as much time to drive out to farms, sit down with clients, determine their needs and provide advice, Parkerson said.

His group points to a study that concluded crop insurance is less profitable than the broad segment of the industry that includes insurance on homes, cars, businesses and individuals. The USDA's proposal would likely cut profits by up to 30 percent, which could prompt some companies to end or scale back their participation, it said.

Senate Agriculture Committee Chairwoman Blanche Lincoln and 29 other senators wrote Murphy late last month about the magnitude of the proposed cuts.

"We remain concerned about proposals that may undermine the program, reduce the quality of service and availability of the program, and harm rural America through job loss,'' they wrote.

Farm groups also have objected to the potential loss of several billion dollars in federal spending on agriculture. They fear any cuts now would mean less money for agriculture in the 2012 Farm Bill.

Chandler Goule, vice president of government relations for the National Farmers Union, said any savings should be put back into other risk management tools for farmers.

Despite the apparent opposition, Murphy said one-on-one discussions with companies have gone very well.

"At the end of the day, it is going to be an offer that's fair to the companies, it's fair to the government, it'll maintain accessibility of farmers and it's also fair to the taxpayer,'' Murphy said.

A.M. Best: U.S. P/C Industry Results Rebound

The U.S. property/casualty industry reported a strong fourth quarter topping off a solid year, according to rating analysts.

Net income climbed to $31.1 billion in 2009, driven by improved underwriting results, the continued recovery of the financial markets and disciplined capital management, said A.M. Best Co.

The rating agency said the industry's underwriting results were buoyed by a quiet hurricane season, significant reserve releases and a sizable reduction in underwriting losses in the mortgage and financial guaranty segments. The industry's much improved investment returns were driven by the significant upturn in the financial markets in 2009.

The rating agency noted that for the first time in A.M. Best Co.'s recorded history, net premiums written (NPW) have declined in three consecutive years. NPW fell approximately 5.9% to $419.3 billion in 2009.

The industry's combined ratio improved to 101.2 in 2009, down approximately 3.0 percentage points from 104.0 recorded in 2008.

Overall net investment gains also increased approximately 31 percent to $43.5 billion in 2009 from $33.1 billion in 2008.

A.M. Best's data shows the industry recognized about $11.0 billion of favorable prior year loss reserve development in 2009.

Also, the agency reported that the U.S. P/C industry's policyholders' surplus position rebounded by approximately 9 percent to $519.3 billion in 2009 from $477.2 billion at year-end 2008.

"The overall industry's conservative operating strategy and effective capital management leave it sufficiently capitalized to navigate the underwriting cycle and volatility in the financial markets, but challenges remain," A.M. Best wrote in its special report.

Judge: Fraud Case Against Ex-AIG CEO Greenberg 'Devastating'

New York state prosecutors have "a devastating case'' against Maurice "Hank'' Greenberg, the former American International Group Inc. chief executive accused of fraud over a reinsurance transaction 10 years ago, the presiding judge said in court Tuesday.

After four hours of oral arguments, New York State Supreme Court Justice Charles Ramos reserved ruling on Greenberg's motion to dismiss the case or the office of New York Attorney General Andrew Cuomo's request for summary judgment. The judge did not indicate when he would rule.

Greenberg's attorney David Boies argued that much of the attorney general's case relies on hearsay disputed evidence regarding two conversations Greenberg had with onetime General Re Corp. Chief Executive Ronald Ferguson that purportedly sealed the deal.

The judge told Boies that David Ellenhorn, a lawyer in the attorney general's office, "has put together a devastating case, a very strong case, and we both know it. I am very, very much focused on those two conversations Mr. Greenberg had with Mr. Ferguson.''

Brought in 2005 by former Attorney General Eliot Spitzer, the case involves a 2000 reinsurance transaction with General Re, a unit of Warren Buffett's Berkshire Hathaway Inc, that boosted AIG's loss reserves by $500 million without transferring risk.

Federal prosecutors have obtained five criminal convictions and two guilty pleas of former General Re and AIG officials over the transaction, including a conviction of Ferguson. He was sentenced to two years in prison.

Robert Morvillo, another Greenberg attorney, told the judge that there was "no independent, non-hearsay evidence that Mr. Greenberg became part of a conspiracy.''

He argued that out of 50 depositions in evidence, only the testimony of convicted former GenRe executive Richard Napier said there was an oral side agreement on the transaction. Napier pleaded guilty to a conspiracy charge and was sentenced to probation.

The transaction at issue long preceded taxpayer bailouts of about $180 billion for AIG after it nearly collapsed from mortgage-related losses. The revelation of the GenRe case contributed to Greenberg's ouster in 2005.

"This transaction is material because it was designed to, and did in fact, mislead investors about AIG's reserves,'' Ellenhorn told the court.

He said that when he deposed Greenberg two weeks ago, 90 percent of his answers were "I don't know,'' despite the now 84-year-old's fame for knowledge of the insurance business and attention to detail.

"He drills down so deep, to the Arctic ice, and yet he tells us he doesn't know the details of what he discussed with Ferguson,'' Ellenhorn said. "It's ridiculous.''

Greenberg is trying to rehabilitate his reputation by settling lawsuits over the transaction and his departure from AIG.

Former AIG Chief Financial Officer Howard Smith also was charged in the civil lawsuit, which seeks to hold the two former executives of what was once the world's largest insurer liable under the Martin Act, New York's powerful securities law.

Last August, Greenberg agreed to pay $15 million to settle U.S. Securities and Exchange Commission charges that he altered AIG's records to boost results between 2000 and 2005.

Three months later, Greenberg and AIG resolved years of litigation that followed his exit. AIG agreed to reimburse him and others for as much as $150 million of legal expenses.

Investigators have questioned Buffett about the General Re transaction, but the billionaire has not been accused of any wrongdoing in respect to the transaction in question.

The case is New York v. Greenberg et al, New York State Supreme Court, New York County, No. 401720/2005.

Auto Insurers Begin Process of Recouping Losses from Toyota

Insurance companies are gearing up to recoup from Toyota money they paid for claims in crashes involving sudden acceleration, the subject of major safety recalls by the Japanese automaker. It could also mean money back for some drivers who paid deductibles.

At least six major insurers, including State Farm Insurance Cos., Allstate Corp. and Geico, have begun examining past claims involving the recalled vehicles, which number about 6 million in the U.S. and 8 million around the world. Insurers can request that Toyota pay them for the claim if a vehicle defect is proven to be a key factor in a crash, a long-standing industry practice known as subrogation.

Many insurers have begun notifying Toyota Motor Corp. that they will do just that.

"We're seeking to have them share in some of the financial liability, because part of it is their fault,'' said State Farm spokesman Phil Supple.

The move could repay some Toyota owners their out-of-pocket costs due to crashes but probably wouldn't have much of an impact on the premiums drivers pay. And it would mostly involve crashes in which people weren't seriously injured, because those cases frequently find their way into lawsuits.

Insurance companies typically refund deductibles -- the amount a policyholder must pay before the insurance takes over -- to their customers when they are repaid in such cases, officials of several companies said this week. None would release any financial estimates or the number of potential crashes, but given the sheer size of the Toyota recalls the liability could be in the millions of dollars.

State Farm has sought reimbursement from Toyota in cases where cars have sped out of control on their own at least as far back as 2007, according to a letter the company provided to federal regulators. The letter, dated Sept. 18, 2007, sought a formal Toyota investigation into a crash involving a 2005 Camry that surged forward at a stop sign and hit another car.

"We are aware of several complaints to your company of unexpected or sudden acceleration involving the Toyota Camry,'' the letter says. "Please accept this letter as notification of State Farm's rights of recovery for the damages we paid to both vehicle owners.''

Toyota issued a limited floor mat recall in 2007, but it didn't cover the 2005 Camry at issue in the State Farm letter. In the past few months, the automaker has issued two unwanted acceleration recalls for several of its popular models, one to fix floor mats the company says can jam floor pedals and one to repair what it calls a problem with pedals that can stick. Prius hybrids have also been recalled for brake issues.

A Toyota statement declined comment on the insurers' attempt to recoup claims but added it was "a common practice in the automotive industry,'' which was echoed by Allstate spokesman Mike Siemienas.

"This is business as usual for Allstate,'' he said.

Experts say most insurers have agreements with automakers to negotiate a confidential settlement over defect-related claims -- and automakers such as Toyota usually have insurance to cover most of the costs. Toyota declined to comment beyond its statement.

"It will be a whole bunch of small claims. What you have here are the fender benders,'' said Mark Bunim of the mediation firm Case Closure LLC in New York. "The major claims, where someone's a paraplegic, they will not be part of that group.''

Not every accident in a recalled Toyota can be blamed on a defect like sudden acceleration, said Insurance Information Institute spokeswoman Jean Salvatore.

"Just because you drive one of the cars that was recalled doesn't mean the accident was caused by the faulty accelerator,'' she said. "It would have to be determined that the cause of the accident was because of the defect.''

That can take a great deal of time, particularly with such a large volume of recalls. The paperwork for each potential claim is painstakingly reviewed on a case-by-case basis before the insurer submits it to the automaker for possible reimbursement.

Salvatore also said vehicle recalls by themselves usually have little impact on whether a driver's insurance premiums will rise. She said there are so many other factors, such as a person's driving and credit history, the car's safety record in crashes, whether the vehicle is frequently targeted by thieves, and so on.

"So, it's very difficult to say that rates will go up or down because of this,'' she said.

The National Highway Traffic Safety Administration has linked 52 deaths to claims of sudden acceleration in Toyotas, and more than 100 wrongful death and personal injury lawsuits have been filed against the automaker around the country. Those are being consolidated before a California federal judge for pretrial matters along with more than 130 lawsuits filed by Toyota owners claiming their cars have lost value since the recalls. An initial hearing is set for May 13.

Despite the lawsuits, Toyota reported March sales of new vehicles rose 41 percent compared with February numbers. Toyota has mounted an aggressive advertising campaign to counter the negative impression left by the recalls and offered sweet deals such as 0-percent financing, cheaper leases and free maintenance for some customers.

Many of the lawsuits contend problems with Toyota's electronic throttle control are the true culprit in the sudden acceleration cases, but the company has insisted electronics are not to blame.

N.Y. Agent Disclosure Rule Will Be Challenged By Another Group

The Council of Insurance Brokers of Greater New York said it will join the legal effort to defeat New York’s compensation disclosure rule for agents and brokers.

CIBGNY said yesterday it will be part of the suit being developed by the Independent Insurance Agents & Brokers of New York challenging the New York State Insurance Department’s new disclosure rule due to take effect next year.

CIBGNY is an association representing independent insurance brokers in the New York City Metropolitan area.

Tim Dodge, IIABNY spokesman, said he believes the associations plan to file the Article 78 action sometime next month, but he had yet to confirm that timeline.

CIBGNY President Anthony Aquilino said in a statement: “The Insurance Department’s insistence on forcing an overbearing and burdensome regulation on our members is more than troubling. Once our board decided recently to initiate an Article 78 proceeding, it was a logical next step to work with IIABNY and protect the interests of both our members.”

CIBGNY legislative chairman Anthony Calafiore added, “While we have no problems in disclosing that we are compensated for providing the insurance, it should be at the time of sale and not when quoting the account.”

Under the new department regulations, slated to take effect on Jan. 1, 2011, producers will be required to describe to consumers their role in the transaction and how they get paid. If the client requests it, the agent or broker will have to provide a more detailed statement about compensation.

IIABNY has claimed the new rules place an undue burden upon agents for no justifiable reason and has questioned whether the department has the authority to promulgate the regulation.

The proposed regulation was published after extensive hearings. It was developed in response to a 2005 New York attorney general’s investigation revealing that some commercial insurance brokers took hidden payments to steer clients to insurers involved in a bid-rigging scheme.

The Professional Insurance Agents of New York (PIANY) previously announced it would not join IIABNY in filing the suit.

PIANY president Kevin M. Ryan has stated that while he sees the value in filing a suit, he believes PIANY can best represent producer interests by retaining its seat at the negotiating table with the department.

The department has said it would be “very difficult” to have open discussions about the regulation with any entity that is party to a lawsuit against it.

Charges Against Goldman Could Unleash Torrent of Lawsuits

The fraud charges against Goldman Sachs & Co. that rocked financial markets Friday are no slam dunk, as hazy evidence and strategic pitfalls could easily trip up government lawyers.

Yet that hardly matters, experts say, because the allegations will kick off a new era of litigation that could entangle Goldman and other banks for years to come.

The charges against Goldman relate to a complex investment tied to the performance of pools of risky mortgages. In a complaint filed Friday, the Securities and Exchange Commission alleged that Goldman marketed the package to investors without disclosing a major conflict of interest: The pools were picked by another client, a prominent hedge fund that was betting the housing bubble would burst.

Goldman said the charges are "unfounded in law and fact.'' In a written response to the charges, the bank said it had provided "extensive disclosure'' to investors and that the largest investor had selected the portfolio -- not the hedge fund client. Goldman said it lost $90 million on the deal.

That doesn't contradict the SEC complaint, which says the largest investor selected the mortgage investments from a list provided by the hedge fund. And the fact that Goldman lost money has no impact on the fraud charges.

The charges will unleash a torrent of lawsuits, and likely signal that the government is prepared to file more lawsuits related to the overheated market that preceded the financial crisis, experts said.

"This is just the tip of the iceberg,'' said James Hackney, a professor at Northeastern University School of Law. "There are a lot of folks out there in different deals who played similar roles, and once it starts building steam, plaintiffs' lawyers will figure out this is where the money is and there should be a lot of action.''

Among the legal action expected in the coming months:

• Class-action suits by Goldman shareholders who believe Goldman alleged misconduct made their stakes less valuable could come as early as Monday. Such suits are common when companies are accused of wrongdoing. Goldman shares fell almost 13 percent Friday as the bank lost $12.5 billion in market capitalization.

• Suits by investors who believe Goldman sold them on deals that were doomed to fail. The investors in the transaction at the heart of the SEC case could sue first, followed by others who believe their losses were similar.

• Possible criminal charges, if the SEC's civil case reveals evidence that meets the higher standard of "proof beyond a reasonable doubt.'' Experts said it's unlikely the company as a whole will face criminal charges, but evidence could emerge that would expose the Goldman executive named in the SEC complaint, 31-year-old Fabrice Tourre, to criminal prosecution.

• Charges by regulators about other mortgage investments at Goldman and elsewhere. SEC enforcement chief Robert Khuzami told reporters Friday the agency is racking up evidence on other deals in the overheated market that preceded the financial crisis.

Already the case has provoked legal questions from foreign governments, according to published reports. That's because the financial crisis forced many countries to bail out banks that lost money on investments arranged by Goldman.

German regulators are considering legal action against Goldman, newspaper Welt am Sonntag reported, quoting a spokesman for Chancellor Angela Merkel.

The charges would be on behalf of IKB Deutsche Industriebank AG -- an early victim of the financial crisis that was rescued by the state-owned KfW development bank among others. IKB invested in the deal regulators are targeting.

The flurry of legal activity is likely to proceed separately from the SEC's case against Goldman, which experts said faces numerous pitfalls.

To prove its fraud case against Goldman, the government must show that Goldman misled investors or failed to tell them facts that would have affected their financial decisions.

The government's greatest challenge, experts said, will be boiling the case down to a simple matter of fraud. The issues involved are so complex that Goldman may be able to introduce enough complicating factors to shed some doubt on the government's claims.

"If you wanted to go after Goldman with a complaint that wouldn't stick, this would be perfect,'' said Janet Tavakoli, president of Tavakoli Structured Finance, a Chicago consulting firm. "If you look at these products, almost all of them look like hoaxes because of the junk inside.''

Legal experts pointed to the paucity of evidence in the government's lawsuit, which contains short excerpts from e-mails but lacks key information about what the various investors knew and what actions they took.

The quality of the evidence was not clear from the complaint, said Jacob Frenkel, a former SEC enforcement lawyer now with Shulman, Rogers, Gandal, Pordy & Ecker PA.

Frenkel said there's been an uptick in "cases where the government chooses select excerpts from e-mails as the basis for its allegations only to find the balance of the text or other e-mails prove otherwise.''

For example, prosecutors last fall tried unsuccessfully to use a series of e-mails to convict two Bear Stearns hedge fund executives. They wanted to convince jurors that there was behind-the-scenes alarm at the hedge funds as investments in complex securities tied to mortgages began to slide.

The jurors were not swayed. After the verdict, some jurors told reporters they found the evidence against the two executives flimsy and contradictory. Others suggested the pair were being blamed for market forces beyond their control.

Goldman already has advanced a similar argument. "Any investor losses result from the overall negative performance of the entire sector, not because of which particular securities'' were in the investment pool, the bank said in a written response to the charges Friday.

That's part of a time-honored tradition of defusing accusations by bringing in details that may or may not be relevant, said James Cohen, a professor at Fordham University School of Law.

"Traditionally it's in the interest of the party that has Goldman's role to muddy the waters -- it's rarely in their interest to have the picture as sharp as HDTV,'' Cohen said.

Several legal experts suggested Goldman and the SEC had reached an impasse over a settlement before the charges were announced. They speculated that Goldman was unwilling to admit that it allowed the hedge fund to create a portfolio of securities that was designed to fail because that admission could do irreparable harm to Goldman's reputation.

"Goldman could've easily paid a fine already,'' said John Coffee, a securities law professor at Columbia University. "So I don't think it's money they're fighting over.''

The case has been assigned to U.S. District Judge Barbara Jones of New York. Jones is the federal judge who five years ago presided over the $11 billion criminal fraud case that toppled WorldCom Corp. and sent its former CEO Bernard Ebbers to prison for 25 years.

Senate Hearings to Explore Federal Mine Safety Regulation Flaws

The Senate plans to explore weaknesses in federal mine safety laws when it convenes the first of a series of hearings this month on the deadly mining disaster in West Virginia.

Iowa Sen. Tom Harkin says the Health, Education, Labor and Pensions Committee will meet April 27 to look at whether the system encourages mine operators to challenge safety violations and delay penalties.

"What we will be looking at are weaknesses in our laws that provide incentives for employers to skimp and cut back on health and safety measures,'' Harkin, D-Iowa, said in an interview.

Harkin, who chairs the committee, said he doesn't expect the initial hearing to explore specific causes of the explosion that killed 29 mine workers.

There is no witness list yet, but it could be the first time that Massey Energy CEO Don Blankenship is called to testify about the accident at the Upper Big Branch mine his company owns.

President Barack Obama is meeting on Thursday with federal labor and mine safety officials to discuss preliminary data on what may have caused the accident.

Harkin said a future hearing by a panel that oversees the Labor Department budget will look at whether Congress has provided federal mine safety agencies enough money to process appeals. No date has been set for that hearing.

A key question will be how to curb the massive backlog of challenges to mine safety citations that is currently overwhelming the understaffed agency handling enforcement cases, Harkin said. Since 2006, the backlog of cases has jumped from roughly 2,700 cases to more than 16,000 now.

The Upper Big Branch mine was repeatedly cited for problems with its methane ventilation system and for allowing combustible dust to build up in the months leading up to the accident. But Massey filed legal challenges to many of those citations.

By tying up the violations in legal proceedings for months or years, Massey was able to delay the Mine Safety and Health Administration from using them in determining whether the mine showed a potential pattern of violations.

Blankenship has defended his company's record and disputed accusations from some miners that he puts coal profits ahead of safety.

Harkin said the committee also expects to discuss a measure that stalled two years ago under opposition from the mining industry and the Bush administration.

The S-Miner Act would have given MSHA greater enforcement power to crack down on companies that show a pattern of violations. It passed the House in 2008, but it stalled in the Senate after the Bush White House threatened a veto.

Mine operators opposed the S-Miner Act at the time because they said they were still struggling to put in place the comprehensive changes demanded of earlier legislation passed in the wake of the 2006 Sago mine disaster, said Luke Popovich, a spokesman for the National Mining Association.

Popovich said the industry expects more congressional scrutiny of the regulations and the law to see where adjustments have to be made.

"Clearly we expect there to be a heightened scrutiny of how this process got to be so dysfunctional,'' Popovich said.

Injured Workers' Drug Costs Higher in Florida Than Other States

The payment per claim for prescription drugs used to treat injured workers in Florida was nearly 40 percent higher than in most study states, according to a new study by the Workers Compensation Research Institute (WCRI).

The 16-state study by the Cambridge, Mass.-based WCRI found that the average payment per claim for prescription drugs in Florida's workers' compensation system was $565—38 percent higher than the median of the study states.

The main reason for the higher prescription costs in Florida was that some physicians wrote prescriptions and dispensed the prescribed medications directly to their patients. When physicians dispensed prescription drugs, they often were paid much more than pharmacies for the same prescription.

The WCRI study, Prescription Benchmarks for Florida, found that some Florida physicians wrote prescriptions more often for certain drugs that were especially profitable. For example, Carisoprodol (Soma, a muscle relaxant) was prescribed for 11 percent of the Florida injured workers with prescriptions, compared to 2 to 4 percent in most other study states.

Financial incentives may help explain more frequent prescription of the drug, as the study suggested. The price per pill paid to Florida physician dispensers for Carisoprodol was 4 times higher than if the same prescription was filled at pharmacies in the state.

The study reported that the average number of prescriptions per claim in Florida was 17 percent higher than in the median state. Similar results can be seen in the average number of pills per claim.

WCRI also noted that prices paid to Florida pharmacies were at the median of the 16 study states, due to Florida's typical pharmacy fee schedule, which is set at the level of the Average Wholesale Price.

The WCRI study is the first in an annual series that benchmarks the cost, price and utilization of pharmaceuticals in workers' compensation.

WCRI is a nonpartisan, not-for-profit workers' compensation research organization.

Malpractice Concerns Lead to Unnecessary Health Tests, Study Says

Concerns about malpractice suits influence how often cardiologists order some potentially unnecessary tests — resulting in significant variations in healthcare use and spending across the United States, according to research reported in Circulation: Cardiovascular Quality and Outcomes, a journal of the American Heart Association.

According to the study, only fear of malpractice was associated with differences in the level of healthcare services used within specific geographical regions, although malpractice and peer pressure factors were both significantly associated with doctors' likelihood to aggressively test and treat heart patients,.

"In an era of escalating healthcare costs and focus on the delivery of high-quality care at the lowest possible cost, it is critical to understand why some regions experience so much higher rates of healthcare utilization than others," said F. Lee Lucas, Ph.D., lead author of the study and associate director of the Center for Outcomes Research and Evaluation at Maine Medical Center in Portland.

Researchers focused on cardiac catheterization in the study as a representative measurement of the intensity of heart-related services offered by physicians. (Cardiac catheterization allows doctors to examine blood flow to the heart and how well the heart is pumping.)

When asked about circumstances under which they order cardiac catheterization "for other than purely clinical reasons," nearly 24 percent of the 598 cardiologists surveyed said they recommended the procedure out of fear of malpractice claims.

The survey also showed more than 27 percent of doctors reported ordering cardiac catheterization because of perceived peer pressure, calling for the procedure if they thought another colleague would do so.

The doctors were also given hypothetical patient vignettes and assigned a Cardiac Intensity Score based on their self-reported recommendations for high-tech or invasive tests and treatments. Cardiac Intensity Scores generally corresponded with the degree of healthcare services used within the physicians' respective regions.

Researchers evaluated region-specific healthcare utilization in 306 Hospital Referral Regions, using two Medicare population based factors – one was specific to cardiac catheterization rates and the other depended on overall healthcare spending among Medicare beneficiaries.

The study suggests that malpractice concerns may be a target for intervention to reduce regional variations.

Greater use of healthcare services doesn't necessarily result in better outcomes or better patient satisfaction, Lucas said.

The study was funded in part by the National Institute on Aging. Co-authors were: Brenda E. Sirovich, M.D., M.S.; Patricia M. Gallagher, Ph.D.; Andrea E. Siewers, M.P.H.; and David E. Wennberg, M.D., M.P.H.

Florida Man Sued for $15K Over Negative Remark Posted on eBay

Can posting your opinion on eBay cost you in real life?

So far Michael Steadman of Florida has spent $7,000 for his, and he isn't yet done defending himself in a $15,000 defamation lawsuit brought by the man who sold him a reportedly defective time clock.

Steadman bought the clock for $44 in 2008, and said it arrived in three pieces that didn't fit together or even seem to be the same model. He got a refund through PayPal's buyer protection plan and sent the merchandise back, but wanted other potential buyers to beware.

So on the profile of emiller1313, he wrote: "Bad seller; he has the ethics of a used car salesman.''

Steadman thought that was the end of it until a process server arrived with a court summons.

It turned out that emiller1313 was a Miami Beach lawyer, and he wanted damages for ruining his 100 percent customer approval rating and "commercial reputation.''

"The laws don't work for us. Because I don't have the money to fight them, I'm losing,'' Steadman said. "It's not right. I'm speechless.''

Steadman recently lost his lawyer in the Miami-Dade County Court case because he ran out of funds.

Seller Elliot Miller said in the lawsuit the time clock was "plainly offered for sale with the following language: 'we can not give you any guarantees and must offer it on an as-is, where-is basis only.'''

Steadman said he joined eBay about six months earlier hoping to find bargains for his new welding shop. He thought he lucked out on the time clock, which he said Miller advertised as tested and proven to work.

Now, he says, "I warn everyone that goes online not to leave feedback.''

Up To 4 Hurricanes May Hit U.S. Shores, Says TSR

Between one and four hurricanes may hit the U.S. coast, according to a new forecast from a team at University College London in the United Kingdom.

Tropical Storm Risk, an Aon Benfield-sponsored forecast group, issued that prediction in its April forecast for the 2010 Atlantic Hurricane Season.

TSR’s Mark Saunders and Adam Lea said they expect the Atlantic Hurricane Season to be 60 percent more active than the long-term average.

The group now forecasts around 16 named storms, nine hurricanes and four major Category 3 hurricanes with winds of 111 mph to 130 mph.

Nine hurricanes is one more than the eight predicted last week by the Colorado State University forecast team, which also said it foresees a higher than normal hurricane season.

TSR’s forecast anticipates a year that has a high probability (77 percent) of being in the top 33 percent of all hurricane seasons in terms of activity.

The meteorologists said the anticipated active season is mainly due to forecasted trade winds in the upper levels of the atmosphere during the August to September timeframes, which enhances the ability for the atmosphere to generate tropical low pressure areas, as well as expected above-average sea surface temperatures.

April’s forecast from TSR was an increase from the December 2009 forecast. It cited “anomalous warming of the waters in the Atlantic Main Development Region, a region that lies between the Cape Verde Islands and the Caribbean Lesser Antilles,” as a major factor in the storm activity.

TSR said the probability of storms making landfall in the United States at an above-average level is 76 percent; the chance that it will be near normal is 18 percent and below normal is 6 percent.

The London group also said it sees the possibility of three-to-seven named tropical storms impacting the use.

It explained that the July to September trade wind speed will be influencing the spinning up of storms (cyclonic vorticity) in the main hurricane track region and the August to September main storm development region sea surface temperature provides heat and moisture to power incipient storms in that main track region.

The Colorado team predicted 15 named storms will form in the Atlantic. Eight are expected to become hurricanes, and four will develop into major hurricanes Category 3,4, or 5 on the Saffir-Simpson scale, with sustained winds of 111 mph or more.

Olympus Is Latest Insurer Under Scrutiny by Florida Regulators

Another young Florida property insurance company is in trouble with state regulators and could lose its license if it does not cut back on business, boost its reinsurance and explain some if its accounting.

Olympus Insurance Co. reported a surplus of $21 million at the close of 2009 and a profitable outlook for 2010. However, Insurance Commissioner Kevin McCarty and his Office of Insurance Regulation (OIR) say the surplus is now only $14 million.

OIR also said the insurer is continuing to increase its premium writings beyond what it did when it reported $50 million in surplus. In an official order last Friday. McCarty ordered the firm to "significantly" reduce its business.

According to the OIR, Olympus does not have adequate reinsurance to pay claims if there is a catastrophic event. OIR said that Olympus' catastrophic plan for 2010 calls for it to retain $6 million in losses and pay $16 million for reinsurance in the event of a $47 million catastrophic event. However, even with surplus of $21 million, Olympus would become insolvent if it had to purchase reinsurance for a second event, according to OIR.

OIR also questioned a Sept. 2009 quota share reinsurance agreement that generated $18.2 million in commission and boosted underwriting income and surplus, as well as a deferred tax asset worth $3.1 million.

Regulators are also concerned that the company has been overpaying its affiliated managing general agent. OIR says Olympus MGA Corp. has been paid a 34 percent commission, even though the licensing agreement filed with the state was for a 22 percent commission with additional underwriting expenses capping this payout at 29 percent.

Olympus has filed a new MGA agreement with OIR that caps the fee to its MGA at 25 percent and caps total underwriting expenses at 28 percent.

Regulators told the Orlando-based company it has until May 7 to submit a corrective plan that addresses its reinsurance program, reduced business volume, profitability for 2010, the accounting of its quota share arrangement and the reasonableness of the $3.1 million deferred tax asset. Olympus must also attempt to gain addition capital form its holding company, Gemini Financial Holdings.

Its failure to comply could mean the loss of its license.

Olympus started writing insurance in the state in 2007.

Olympus is one of a half dozen smaller insurers caught up in a compliance crackdown by OIR in recent months.

Senate to Consider Restarting Flood Insurance Program Today

Congress today could advance a provision reinstating the flood insurance program as part of a bill extending unemployment benefits and subsidies for COBRA health insurance premiums.

The Senate is scheduled to vote on whether to end debate on the legislation, which it did not do before it left two weeks ago for a recess. The House approved the bill on March 17.

Senator Tom Coburn, R- Okla., blocked the Senate from voting on the bill, arguing that to do so would add to the deficit. Democrats argued that the measure qualified as emergency spending and revenue sourcing could be dealt with later.

At least one Republican will have to agree to end debate if Democrats are to get the 60 votes needed advance the measure.

Congress could reinstate the NFIP and other affected programs retroactively. However, even if the legislation passes, it would only extend the flood insurance program until April 30, 2010 so lawmakers will have to revisit the issue.

Due to the partisan stalemate, the federal flood insurance program's authority to write new policies ended on March 28 at midnight. Insurance agents have not been able to provide new or renewal flood insurance policies, which are required by lenders to close on some real estate sales.

A similar impasse occurred at the end of February and the NFIP was closed for several days until Congress renewed it on March 2.

The NFIP expirations have caused headaches for insurance agents and their customers as well as delays for some consumers waiting to close on the sale of a property within a flood hazard area.

While no new policies can be issued during a lapse in NFIP authorization, consumers with current flood insurance policies remain covered. Claims payments are not affected.

AmWINS May Top Its Sector After Colemont Brokerage Buy

AmWINS Group Inc. said it has acquired Colemont Insurance Brokers in Dallas, in a move which may make it the nation’s largest wholesale brokerage, a consultant suggested.

Financial terms of the transaction were not released.

In a statement, Charlotte, N.C.-based AmWINS said the two companies combined will distribute over $4.8 billion in annual premiums with more than 1,800 employees in 16 countries worldwide.

The combined companies will operate under the AmWINS Group name and be comprised of four divisions:

• AmWINS Brokerage, which distributes property and casualty and financial services products through retail brokerage clients.

• AmWINS Underwriting, which is the managing general agent.

• AmWINS Group Benefits, which designs, distributes and administers specialty group insurance products through retail insurance brokerage clients.

• Colemont Global Group, the company’s International Division, which operates as a full-service, worldwide insurance and reinsurance brokerage network headquartered in London with more than 25 offices in 16 countries.

The combined firm will be led by M. Steve DeCarlo, chief executive officer; Skip Cooper, president; James Drinkwater, president, U.S. Brokerage division; Sam Fleet, president, Group Benefits division; Michael Lapeyrouse, Underwriting division leader and president, The American Equity Underwriters Inc.; and Surinder Beerh, CEO of Colemont Global Group.

Mr. DeCarlo said in a statement, “Not only does this combination strengthen our geographic footprint, but more importantly, we have expanded the expertise and capabilities available to our clients.”

The combination, he added, “results in broadened placement expertise, deepened collaboration and an overall ability to offer more solutions to our retail customers with an enhanced distribution system for our markets.”

Gene Eisenmann, retired founder of Colemont, noted, “From the beginning, the two firms have had similar cultures—strongly founded in being independent and doing what is best for the client.”

He remarked, “Bringing the two firms together provides an opportunity to combine the best talent in the industry with access to the most diverse product solutions and unparalleled relationships with insurance carriers and markets.”

AmWINS said this acquisition will mark its first foray into the international insurance marketplace. “We have studied and evaluated many opportunities to grow our firm beyond the U.S. borders,” said Mr. Cooper. “The opportunity to build upon the international network and capabilities of Colemont Global Group is an exciting part of this combination.”

Audra Szollosy, senior vice president for the agency consulting firm Hales & Company (which was not involved in this deal), said the acquisition could put the firm ahead of CRC Insurance Services, which reportedly has over $3 billion in premium and is owned by Winston Salem, N.C., bank BB&T Co.

“I was shocked,” she said. “This is a big deal and could be the sign of things to come.”

With Colemont’s overseas presence, she called it a “fabulous combination.”

After a very quiet 2009 in regard to merger and acquisition activity, she said this could be a sign of the beginning of additional consolidation, possibly among the top 10 insurance broker wholesalers.

AmWINS is a wholesale broker distributor of specialty insurance products in the United States. The company operates through more than 45 offices across the United States and handles premium placements in excess of $3.5 billion dollars annually.

Additional information about AmWINS is online at www.amwins.com.

Colemont, with 700 globally located employees, was founded in 1992 and placed over $1.3 billion in gross premium last year.

P&C Sector First Quarter Profits Foreseen By KBW

The property and casualty insurance group is looking at limited top-line growth, but should record a profitable first quarter despite Chilean earthquake and winter storm losses, an investment bank’s analysts said.

Keefe, Bruyette & Woods equity researchers said for the sector, their first quarter projections also foresee some glimmers of price increase in personal lines, a slowing of favorable loss reserve development and merger and acquisition activity that targets smaller regional U.S.-based insurers.

Reinsurers, their report said, did not do well in the quarter being hit hard by catastrophe losses. Bermuda merger action is projected for that sector.

Insurers’ loss ratios, according to KBW are still likely to benefit from reserve releases although at a slower pace than 2009.

The analysts said they believe the companies’ top-line will continue to be a challenge, noting that “competition remains tough and underlying exposures have not grown. We expect investment portfolios to report a good quarter and that the industry was active with capital management.”

KBW said as a result of first-quarter loss events, including the Chilean earthquake that might involve insured losses as high as $10 billion, Europe’s Windstorm Xynthia and U.S. storms, it has reduced earnings per share estimates for a number of companies that have preannounced losses and has made its own estimates of losses for those that did not.

U.S. storm claims will largely be due to roof damage and should be small enough to fall below reinsurance coverage, the firm projected.

Despite losses, EPS estimates are still within the range of what KBW analysts said they view to be a “normal” year. The firm said 2009’s low level of loss events was the anomaly, not 2010’s activity.

KBW said its top equity picks in the sector include ACE Limited, Arch Capital Group, Allied World Assurance Holdings, Chubb Corporation, and Tower Group Inc.

According to the analysis, rates will be down in the mid-single-digit range with personal lines the only sub-segment which manages rates that are flat or increased at a low-single-digit level.

Auto and homeowners insurers, it was noted have been continuing to gradually and selectively increase prices in loss-hit areas, albeit cautiously in markets with less favorable economic conditions.

The “bright spot” for the p&c industry, according to the research report, will be share repurchase programs with most of the insurers and reinsurers that KBW studies using buybacks “as excess capacity grows despite recent loss events.”

For most p&c companies loss favorable loss reserve development will slow, said KBW, but noted that companies it studies actually saw increased favorable development in 2009, which it attributed to better than anticipated accident year loss trends or firms being over optimistic about loss trends and bringing down reserves too aggressively--possibly a combination of both.

Regarding reinsurers the researchers said they were off to a tough start, impacted by the Chilean quake, Windstorm Xynthia, Australian hailstorms and floods and U.S winter weather. “We expect abut a third of the group to lose money in the first quarter with the remainder having earnings reduced in a meaningful way,” they wrote.

Northern Capital in Hazardous Financial Condition

On May 27, 2009, Northern Capital Insurance Company (Northern Capital) was placed in Administrative Supervision by the Office of Insurance Regulation (Office). The Office has been continuously monitoring operations and reviewing corrective action and other measures undertaken during this extended period of supervision.

Even after these extensive efforts, Northern Capital no longer meets the minimum capital and surplus requirements, is unable to raise sufficient additional capital to continue operations, and all other discussions to sell the company have come to an end.

On April 7, 2010, the Office notified the Department of Financial Services (DFS), that the company is insolvent and is in hazardous financial condition.

It is anticipated that in short order DFS will petition the Court to order Northern Capital into receivership. If the company is ordered into liquidation all policies will be cancelled no later than 30 days from the date of the liquidation order. Based on the financial statements filed with the Office by the company, liquidation appears to be a strong possibility.

Agents and policyholders should look now for new coverage

• Agents and policyholders should cancel coverage with Northern Capital and shop for new coverage in the voluntary market now.

• Unearned premium will be refunded to the policyholder as quickly as possible to facilitate the purchase of new coverage.

• If replacement coverage is not available in the voluntary market, Northern Capital insureds are eligible now to apply for coverage with Citizens.

Florida Jury Awards $10 Million in Ambulance Birth

A jury has awarded $10 million to a Volusia County who sued an ambulance transport service over injuries her son received during his premature birth in 2003.

The jury decided last week that EVAC Ambulance was negligent for transporting Margarita Chess, who gave birth to her son while en route to the hospital. Her son was left with cerebral palsy after suffering a lack of oxygen to the brain.

EVAC spokesman Mark O'Keefe said the company stands behind the paramedics and intends to appeal the verdict.

Court records show Chess went to one hospital for premature labor. She was going to be treated at another hospital, but the ambulance was called to transport her to a different hospital. The hospitals and doctors named in the lawsuit settled the case last year for $1.4 million.

The Hartford to Restructure for Growth, Target Small to Medium Accounts

Hartford Financial Services Group Inc. will restructure itself under a plan to reignite growth by courting small- and medium-sized businesses as clients and reining in risk.

The announcement of the plan comes a day after the insurer, the 10th-oldest company in the United States, repaid $3.4 billion of U.S. government bailout aid that was made necessary by massive losses during the financial crisis.

Chief Executive Liam McGee, speaking at Hartford's New York City investors meeting on Thursday, unveiled a strategy that included above-market growth goals and realigning the company into three main business units.

"We're too complex a firm right now,'' McGee said, during a question and answer session with investors.

He said Hartford will focus on limiting company-wide risk, and avoid concentrating too heavily in the sales of certain products -- like variable annuities.

Hartford reported in fourth quarter 2009 its first quarterly profit in nearly two years, after suffering massive losses on stock-market related annuities and investments throughout the financial crisis. The company reports first quarter earnings on April 29.

The new plan focuses on small and mid-size business customers for insurance, retirement plan and group benefit sales.
Hartford also plans to grow its wealth management business by courting business owners' as clients, and aims to sell up to $5 billion in annuities annually by 2012.

Finally, the company is ending mass marketing of personal insurance lines, and will court customers above 40 years old, primarily through affinity groups like AARP.

McGee said Hartford is targeting high single-digit core earnings growth between now and 2012, along with an 11 percent return on shareholder equity by 2012.

As part of the restructuring, the company will split its operations into three major business units -- consumer markets, commercial markets, and wealth management -- and focus on a narrower set of insurance, wealth and annuity services and clients.

The change was first announced to employees on Tuesday, and the restructuring is expected to be completed by summer, McGee said in an interview with Reuters.

"It was clear the company had significant capabilities, but it was unduly difficult to get things done,'' said McGee.

The commercial markets unit will oversee all insurance catering to business and corporate customers, as well as Hartford's legacy property and casualty holdings. It will be run by former property and casualty chief Juan Andrade.

The new wealth management division will oversee the annuities, individual life insurance and traditional wealth advisory services, and will be managed by John Walters. Walters formerly oversaw the company's life division.

The consumer markets division will manage the company's AARP relationship, other affinity programs and general development.

McGee said the search is continuing internally and externally for an executive to run consumer markets, and he expected to name someone by the summer.

Although the company is making major changes in its operations, it has no immediate plans to divest pieces of the company, McGee said.

"We like the businesses we're in,'' he said.

GOALS

During the presentation, company executives said the higher-than-expected earnings would come via a mix of cost-savings initiatives and pricing its products to produce a 13 percent to 15 percent return on equity.

Hartford Chief Financial Officer Chris Swift said the company was revising its 2010 earnings forecast of $3.70 to $4.00 per share, announced in February, to $2.60 to $2.90 per share, reflecting the repayment of the U.S. government's bailout aid.

But longer term, Hartford executives said they are interested in expanding the insurance and other units to cover emerging industries, like renewable energy.

"That's going to evolve,'' McGee said.

Hartford shares closed up 1.6 percent at $28.88. Company shares have rebounded strongly from a 52-week low of $6.52 a year ago and have gained 24 percent this year.

Federal Flood Insurance Program Closed for Weeks

As insurance and real estate agents and homeowners feared, Congress left Washington without extending the federal flood insurance program.

Congress adjourned until April 12 after failing to agree on an unemployment benefits bill that included a provision with an extension of the National Flood Insurance Program.

As a result, the federal flood insurance program's authority to write new policies ends on Sunday, March 28 at midnight. After that time, insurance agents will not be able to provide new or renewal flood insurance policies, which are required by lenders to close on some real estate sales.

Senator Tom Coburn, R- Okla., blocked the Senate from voting on the bill to extend the jobless benefits arguing that to do so would add to the deficit. Democrats argued that the measure qualified as emergency spending.

A similar impasse occurred at the end of February and the NFIP was closed for several days until Congress renewed it on March 2.

But this time the hiatus will be longer.

Congress could reinstate the NFIP and other affected programs retroactively when it returns on April 12.

The NFIP expiration last month caused headaches for insurance agents and their customers as well as delays for some consumers waiting to close on the sale of a property within a flood hazard area.

While no new policies can be issued during a lapse in NFIP authorization, consumers with current flood insurance policies remain covered. Claims payments are not affected.

The NFIP has issued guidance for operating during an interruption.

FEMA is expected to issue updated guidance soon.

A Buyers Insurance Market May Persist To 2011, Advisen Finds

Insurance buyers are likely to enjoy another year of favorable pricing through 2010, although brokers will continue to struggle, according to a new Advisen Ltd. Special Report.

“It’s increasingly looking like the soft market’s going to continue, at least well into 2011, unless something rather dramatic happens,” Dave Bradford, an Advisen executive vice president and author of the briefing said in an interview.

Does this mean more good deals for commercial lines buyers? “Absolutely,” he said, “at least through 2010. There’s nothing right now that suggests it’s going to harden any time in the foreseeable future, but there are too many moving parts to project it out too far.”

While the commercial lines insurance market has been pummeled by the combined impact of depressed rates and declining written premiums resulting from the global recession, insurers will nonetheless post a profit for 2009 and capacity remains abundant. According to the report, “The Insurance Market in 2010: The Lingering Impact of the Recession on Capacity and Pricing,” sponsored by FM Global.

The report found that capacity for insurance is abundant in most lines, but demand for that capacity has been diminished by the ravages of the recession.

“Decreased demand as a result of the damaged economy will keep rates from rising in 2010,” Mr. Bradford said in a statement. In addition, he said, premium volume “for lines of business that are based on factors such as payroll and revenues will continue to be suppressed by the lingering impact of the recession. It is going to be a challenging year for insurers and, especially, brokers.”

As premium volume falls, insurers seeking to deploy their excess capacity are considering new avenues for growth. “The continuing soft market further encourages insurers to introduce new products and move into new markets,” Mr. Bradford said.

“New products and markets can provide new revenue streams, but they can also cause erratic insurer results,” he noted.

With several exceptions, property & casualty insurers were largely unscathed by investment losses directly attributable to the meltdown of the subprime mortgage market in 2007, the report found.

Economists generally agree that the recession has ended, but recovery will be slow. Unemployment hovers at about 10 percent, and business bankruptcies are well above long-term averages. As a result, the commercial lines insurance industry has seen revenue fall with little hope of a material rebound in 2010, said the report.

Additionally, the soft phase of the insurance pricing cycle shows few signs of loosening its grip. The average commercial lines premium fell about 2 percent in 2009, and likely will fall by a similar amount in 2010, Advisen found.

Brokerage firms, which derive most of their revenue from commissions on insurance premiums, have been especially challenged by declining written premium. Organic growth turned negative during the first three quarters of 2009, though profitability remained relatively stable for the largest firms, the firm said.

According to the report, the most likely scenario for 2010 is continued soft market conditions. The recession will suppress demand for insurance capacity and as a result, the market will remain comparatively overcapitalized. Some policyholders will see modest rate increases, but on average rate levels will erode slightly in most lines.

But while commercial lines insurance buyers can plan on a competitive insurance market for 2010, the seeds of the next hard market have been sown, and above-average catastrophe losses could contribute to a reversal of the market cycle, the report said.

The inevitable hard market may begin to emerge as early as 2011. In the absence of large catastrophe losses, the sudden and severe premium hikes that characterized the 2001-2003 hard market are unlikely to be repeated. Rather, rates will rise slowly and erratically, Advisen forecasted.

How high rates rise, and how long the hard market persists, will depend in part on how much new capital is attracted to the market, the report said. Insurers already have successfully raised funds in the depths of the soft market, suggesting that abundant capital is waiting in the wings, the report said.

The wild card in the market cycle, as always, is catastrophe losses, Advisen noted. One mega-catastrophe, such as another Hurricane Katrina, or an accumulation of smaller catastrophes could soak up excess capacity and contribute to a turn of the market in all lines of business, the study said.

So far, 2010 is shaping up as an active and expensive year for natural catastrophes. Nonetheless, it would take an exceptional level of catastrophe losses to trigger the type of sudden and sharp market rebound that was seen in 2001-2003, according to the report.

Reinsurers See Worst 1st Quarter From Storm Events

An unprecedented $16 billion in first-quarter reinsurer losses from the Chilean earthquake, European storm Xynthia and other natural catastrophes is a record worst for the period, said Willis Re.

The reinsurance broking arm of Willis Group Holdings’ 1st View renewals report said this year’s first-quarter result followed a year of historically low frequency and severity for losses with resulting excellent financial performance.

Now, the report said, reinsurers will, for the first time in many years, see results worse than those of their primary insurance company clients.

The Willis Re report, titled “Calm Amid Calamity,” tracks reinsurance rate movements across numerous territories and product classes. The review said the difficult first quarter does not bode well for reinsurers because their largest losses are coming from smaller markets, where they are less able to generate significant premium volumes to accelerate post-loss payback.

At the same time, losses in the first three months of the year leave reinsurers exposed to the historically more loss-prone third and fourth quarters, Willis Re said.

Adding to the potential for future market volatility, some forecasters are now predicting a more-active-than-usual North Atlantic hurricane season, the firm added.

Willis said there are two other potential areas of concern in the reinsurance arena: less plentiful reserve releases and excessive exposure to sovereign debt.

A close analysis of reinsurers’ 2009 performance found that results are showing some evidence of reserving stress, with fourth-quarter 2009 releases not as plentiful as in earlier quarters.

In addition, as a result of the financial crisis, many reinsurers have aggressively “de-risked” their investment portfolios by investing in government debt as a seemingly secure alternative, the report said.

This, Willis Re said, is starting to raise concerns over excessive exposure to sovereign debt at a time when many governments are under increasing fiscal strain.

Other renewal trends highlighted in the report are:

• Despite increasing uncertainty and loss activity, the reinsurance market has yet to react in terms of pricing, conditions and capacity. April 1 renewals have seen continuing modest risk-adjusted reductions and hardening only in specific territories and classes with consistently poor results.

• Capacity in all lines has been ample as the issues of rate exchange volatility affecting capacity no longer have any impact.

• Merger and acquisition activity has picked up following the Max Capital and Harbor Point deal. Willis Re predicts the pace will quicken over the next six months as financial organizations that received government bailouts seek to divest their insurance assets as part of the recovery process.

“While one poor quarter, which is an earnings issue for reinsurers, will not be sufficient to trigger a general market turn on its own, it is likely to stiffen reinsurers’ resolve on renewals later in the year as the size of the recent catastrophe losses develop and back-year reserve releases reduce,” said Peter Hearn, chief executive officer of Willis Re.

“This is balanced by the remaining reinsurance capacity oversupply and the continuing difficulties companies face in achieving any top-line growth to offset claims and expense increases. Against this background, absent any other major losses, buyers who will be renewing loss-free programs later in the year can continue to budget for stability or modest reductions in their reinsurance costs,” Mr. Hearn concluded.