14.1% Drop In Fla. Comp Rates Proposed

Workers’ compensation insurance rates in Florida would see an overall average decrease of 14.1 percent statewide under the latest proposed rate filing, it was announced.

Florida Insurance Commissioner Kevin McCarty said in a statement that he has received the latest rate filing from the National Council on Compensation Insurance for rates that would become effective next year if approved.

He said the recommended drop in rates would produce a savings of more than $465 million for Florida employers.

Boca Raton, Fla.-based NCCI, which produces and files rates for insurers, said the rate decline was primarily due to a significant drop in claims frequency and a reduction in the costs of claims.

The rate decrease, if approved, would be the sixth consecutive drop since the Florida Legislature passed extensive reforms to the state's workers' comp system in 2003. The cumulative overall statewide average rate decrease since 2003 would total 58.3 percent.

Commissioner McCarty said, "These lower workers' compensation rates will have a positive impact on every segment of our marketplace. It is great news for business owners and their employees, because Florida employers are paying lower rates and benefits are being delivered fairly and effectively. The reduction of fraud and abuse in the system is certainly paying off."

According to the OIR, prior to the legislative reforms, the state of Florida consistently ranked No. 1 or No. 2 in the country for the highest workers’ comp rates; however, post-reform, Florida has dropped out of the top 10 rankings.

The OIR said a hearing on the filing will be scheduled in October, and the rate change would be effective for new and renewal business as of Jan. 1, 2009.

The revised Florida comp insurance law passed in 2003 instituted provisions for enhanced fraud compliance and revised permanent and temporary disability definitions. It also set new parameters for attorney and physician compensation and improved dispute resolution procedures, in addition to making many other improvements to the system.

AIG Hit By Credit Suisse, Fitch

American International Group’s stock price sank today after Credit Suisse upped its loss estimates for the firm by billions. On Friday a rating firm took negative action against the giant insurer.

AIG shares, which sold for close to $70 12 months ago, were at $18.99 in late afternoon trading on the New York Stock Exchange.

Fitch Ratings late Friday said it had updated its assessment of American International Group and placed its ratings of the insurer and its subsidiaries on Rating Watch Negative.

Credit Suisse cited AIG’s credit default swap portfolio as a problem and said it estimated that AIG Financial Products is “sitting on a $6.5 billion loss vs. our previous estimate of a loss of $2.6 billion.”

The firm said it was lowering the company’s third-quarter earnings per share estimate to a loss of 86 cents from a gain of 13 cents.

Based on our mark-to-market analysis of AIG’s investment portfolio, Credit Suisse said it expects AIG’s book value to decline by 6 percent.

The estimate for AIG is being lowered largely due to elevated losses from its derivatives business. If AIG continues to hold its exposures, a de-risking strategy may result in losses remaining elevated given the very poor liquidity conditions for securities with residential housing exposures, the firm said.

Credit Suisse said in the event of a one notch ratings downgrade from both Moody’s and S&P, AIG would be required to post up to $13.3 billion of additional collateral.

Fitch, before Friday, had previously put a long-term Negative Rating Outlook on AIG and the majority of its insurance-related subsidiaries rated by Fitch, and a Stable Rating Outlook on AIG's financial services subsidiaries.

Fitch Rating Watches are generally event-driven actions that are expected to be resolved over a relatively short period.

Financial subsidiaries rated included AIG Capital Corporation (AIGCC), International Lease Finance Corp. (ILFC) and American General Finance Inc. (AGF).

Fitch noted that it does not rate AIG Financial Products (AIGFP), which have been a significant source of recent quarterly losses reported by AIG.

The rating service said moving all rated AIG entities to Rating Watch Negative reflects its uncertainty regarding potential outcomes of AIG's previously announced business unit review, which is expected to be completed in late September.

Also reflected in the change, Fitch said, is ongoing uncertainty associated with the company's potential for additional realized and unrealized losses on its various residential mortgage backed securities-related exposures, including its portfolio of credit default swaps collateralized by structured finance collateralized debt obligations (CDOs) and resultant collateral posting and capital needs.

Fitch said it believes that completion of AIG's review of its various business units will likely provide clarity around some of its rating concerns over the next four to six weeks.

However, the company noted that concerns related to both AIGFP's and AIG's insurance operations' exposure to credit-market volatility is more likely to emerge over a longer period of time that may extend over the next two quarterly reporting periods.

Although Fitch noted that AIG has publicly acknowledged that ILFC will remain a core holding of AIG, Fitch said its decision to place ILFC on Rating Watch Negative reflects a heightened overall level of uncertainty surrounding the AIG organization and the indirect impact this can have on ILFC.

Experts See Computers, Obesity, Adding To Comp Risk

Obesity, an aging workforce and injuries caused by new technologies are among emerging risks faced by workers’ compensation insurers and businesses, said experts at an industry conference here.

Their comments were made during the Florida Workers’ Compensation Institute’s Workers’ Compensation Educational Conference (WCEC).

In a National Trends program session, organized by National Underwriter, a presentation prepared by Insurance Information Institute (I.I.I.) President Robert Hartwig showed trends such as obesity and an aging workforce leading to more frequent and more expensive claims going forward.

Most obese workers, according to the presentation, miss 13 times more work days than healthy weight workers, and indemnity costs for time away from the job are 11 times higher for the most obese workers than for healthy weight workers.

For older workers, who are make up an increasing part of the workforce, the presentation cited a fatality rate for workers 65 and older that is triple that of workers age 35-44. Median lost time is also 50 percent greater for 65 and older workers compared to 35-44 workers.

While employers may be under the impression that older workers will have claims handled by Medicare, the presentation explained that if workers’ comp coverage is available to an individual, then Medicare does not cover an injury. Additionally, if Medicare does cover the injury, it will seek subrogation.

Mr. Hartwig’s presentation also cited rising medical severity costs for returning injured war veterans and non-English speaking workers as emerging and continuing risks.

With respect to non-English speaking workers, and in particular for Latino workers, the presentation noted that as their workforce percentage increases, they will eventually shift to lower-risk jobs, and that will cut the injury rate. In the meantime, though, making sure that workers who do not speak English understand safety manuals and procedures remains a challenge.

Jennifer Tomilin, senior vice president, Zurich North America, also gave a presentation on emerging risks, and noted risks associated with technology as a growing problem. For example, workers who are always using laptops face the challenge of proper positioning while typing. Because these workers are often forced to work on planes or other cramped conditions, she said injuries are occurring in greater numbers.

Other risks Ms. Tomilin cited include high incidents of stress-related problems, due in part to technology that keeps people working well beyond normal business hours, and injuries such as “Travelers Thrombosis,” which are clots that form due to long periods of sitting, in particular on long plane flights.

P-C Trends Look Positive Says Keefe, Bruyette & Woods

Second-quarter results for the property-casualty insurance sector were mixed, but overall profits were excellent and the trend should continue, according to an investment bank analysis.

Analysts at Keefe, Bruyette & Woods said in a report they foresee declines in premium levels for insurers and brokers’ revenues, reduced investment income and an active merger and acquisition environment, among other trends.

The report also mentioned further capital management and “modest” deterioration of profit margins.

The firm said underlying earnings results remained strong and because it expects positive trends continuing it favors smaller regional and specialty insurers.

Referring to 50 insurers followed by KBW, the report said, “The group on the whole posted a 12.2 percent annualized ROE [return on equity] in the quarter, down from 15.5 percent in a year ago, but still impressive profitability in our view.”

Among firms that KBW tracks, it said 58 percent beat expectations in the quarter, 38 percent missed and 4 percent were in line—a modest improvement from the first quarter when only 45 percent exceeded expectations and 48 missed.

The company noted particular strength in personal lines and Bermuda-based insurers and reinsurers, which were offset by commercial/specialty lines and brokers.

Merger and acquisition activity included four major deals among insurers (Safeco/Liberty Mutual, Darwin/Allied World, Philadelphia Consolidated/Tokio Marine and CastlePoint/Tower Group) and KBW said it expects “robust” deal making to continue.

With a continuing fall in insurance prices, KBW foresees continued downward pressure on premium volume in coming quarters. In the second quarter, its report said total net written premiums were only up 0.3 percent.

Total brokerage revenue growth for the five companies KBW tracks was 7.8 percent for the second quarter compared with 5.8 percent for the period last year.

KBW said it expects in coming quarters other brokers will join Aon and Gallagher in share buyback activity.

A portion of the report said that frequency of weather-related losses appears to be growing, with tornadoes and other weather causing nearly 60 percent of U.S. catastrophe losses since 1953.

It noted that the United States, averaging about 1,000 tornadoes a year has the highest number of tornadoes “on the planet” and that the first half of 2008 had nearly double the average level of tornado activity.

Fay Drowns Florida

Tropical storm Fay continued to dump rain over Florida and is expected to do so for the rest of the week before moving out along the Gulf Coast.

An insurance association executive said it is still too soon to tell what the insurance damage may be from the storm that has dumped as much as 30 inches of rain on isolated parts of the state according to the National Weather Service.

By mid-afternoon Fay was reported to be stalled just north of Cape Canaveral, Fla., the National Hurricane Center reported, with a tropical storm watch extending from Fort Pierce, Fla., north to Altamaha Sound, Ga.

The storm, with maximum sustained winds of 50 mph, was expected to begin moving again into the Atlantic, then move northwest over the Florida Panhandle. The Hurricane Center said an unofficial report puts total rainfall so far just northwest of Melbourne, Fla., at 22 inches.

William Stander, assistant vice president and regional manager for the Property Casualty Insurers Association of America, said in an e-mail, “It is too soon to determine the full scope of insurance losses at this point. Floridians are just now starting to file claims.”

He added, “Insurers stand ready to assist Floridians recover from flash floods, high winds, tornado activity and power outages that have been reported across the state.”

Steve E. Smith, president of Property Solutions Carvill ReAdvisory, said Fay is expected to spend the 12-24 hours over the Atlantic where it is expected to intensify but not reach hurricane status.

According to Progress Energy’s Web site, 437 customers are without power. Florida Power and Light Company said about 93,000 customers were without power, but the figure was expected to fluctuate and his crews are working to restore power as quickly as possible.

In a statement, the company said that Miami-Dade, Broward and Palm Beach counties were “essentially restored.” Other areas of the state were still being worked on.

Reports say the storm has spawned nine tornadoes, injuring two and damaging more than 50 homes.