Sabal Insurance Group will be closing early on Wednesday, November 26th, at 3:00p.m., and will be closed Thursday and Friday to celebrate the Thanksgiving Holiday. We will resume our normal operating hours on Monday, December 1st.Florida may have dodged a bullet avoiding a major storm in the 2008 hurricane season, but insurance industry groups have warned lawmakers about the need to address the state’s underfunded Hurricane Catastrophe Fund.
“We are extremely thankful to have weathered the 2008 season with no major hurricanes,” said Bob Lotane, a spokesman for the National Association of Insurance and Financial Advisors in Florida. “However, we hope that this does not mask the very deep-seeded problems in our hurricane insurance matrix.”
Florida was not hit by any major hurricanes, but Florida Insurance Council executive vice president of the Sam Miller noted that there were more storms overall in the area.
"Just because Florida was spared does not mean that hurricane activity is down,” he said. “The fact is we remain in the middle of a 20-year cycle for increased hurricane activity,"
Lynn Knauf, director of personal lines for the Property Casualty Insurers Association of America, offered an even longer estimate for the cycle at as many as 50 years. Florida was one of several coastal states that the PCI noted faces significant problems, and the group called on lawmakers to respond accordingly.
“To help protect homeowners, state governments should stabilize the financial condition of these coastal insurance markets as property exposure continues to grow,” said PCI Southeast Regional manager William Stander.
The hurricane season is officially over Nov. 30, but Mr. Miller noted that next year’s hurricane season is not far away and the Catastrophe Fund faces a shortfall of $10 billion to $15 billion. In addition, the turmoil in the economic markets would make raising additional funding through bond issues more difficult.
The most likely solution, Mr. Miller said, would be to reduce the Fund’s total obligations from its current limit of $28 billion to the $16.5 billion ceiling that was in place prior to a 2007 law expanding the fund.
That law, he noted, only expanded the fund for the 2007, 2008 and 2009 seasons. “It’s going away anyway,” he said, which in addition to the acknowledged shortfall should make it easier for lawmakers to accept eliminating it early. “It isn’t real anyway,” Mr. Miller said.
By rolling back the Cat Fund, the state would effectively push insurers to purchase more reinsurance from the private market, Mr. Miller noted, and the Council called on state lawmakers to allow insurers to include these increased costs as they calculate rates.
This is especially the case for the state run insurer, Citizens Property Insurance Corp., said Mr. Miller. Lawmakers froze Citizens rates in 2007, and there is already concern that Citizens must raise its rates to avoid assessments on taxpayers in the aftermath of a major storm.
“We urge policymakers and regulators to address the serious underfunding of our catastrophe fund in addition to inadequate rates being applied in the state-run insurance company and also with the private insurers taking policies from it,” said Mr. Lotane. “The solvency of not only these entities is at risk but, in fact, the solvency of the state as well should our good luck regarding catastrophic storms turn around.”
The insurance industry can expect some consolidation going forward, as big companies get bigger and weaker companies struggle to survive the current economic challenges, an expert said today.
Speaking during an Ernst & Young teleconference, “Financial Crisis And The Insurance Industry,” Robert W. Stein, global director of Actuarial Services, Ernst & Young LLP, said weaker companies will likely not survive going forward, and that will lead to increased consolidation in the industry.
Mr. Stein warned, “There are issues on the banking side as to whether the rise of mega institutions is always a good thing, but it’s quite clear that we will see the big getting bigger, and I think with that will come a little bit of increase in complexity and risk profile—perhaps undesired, but nonetheless part of the ‘getting bigger’ situation.”
He predicted that many insurance companies will restructure and sell non-core businesses to raise capital, which will lead to a change in business profile throughout the industry.
David Schieldrop, managing director, Barclays Capital, commented, “Out of difficult times comes opportunity for some.”
He said a lot of properties are coming to market while valuations are under “severe stress”. He said the current mergers and acquisitions environment is a “once in a generation opportunity” for people to acquire some of the largest franchises in the industry, and he mentioned the expected sale of several American International Group properties as an example.
He noted that with valuations as stressed as they are, though, there is less incentive to sell. The activity over the next year will likely be AIG and other distressed situations, Mr. Schieldrop said.
American International Group Inc. said it is terminating voluntary deferred compensation programs to eliminate an incentive for employees to leave the company in order to get back pay, and as a result will distribute approximately $500 million to such individuals in the first quarter of 2009.
AIG said 14 voluntary deferred compensation programs involving 5,600 employees and independent agents and representatives are affected by the decision.
The company explained that these individuals earned but volunteered to defer receiving these funds until a later date.
In each case, an employee could leave AIG for any reason and be entitled to this deferred pay. The cash-strapped company—which has been forced to accept government ownership in return for a federal bailout loan—has been fighting to keep staff in place as it struggles to stay afloat.
“AIG has decided to terminate and pay out the deferred pay plans to remove the incentive for employees to leave in order to obtain their deferred pay,” said Andrew Kaslow, senior vice president of human resources.
“Many AIG employees have seen their life savings wiped out in the financial crisis,” Mr. Kaslow said. “Employees are now concerned about obtaining the pay they have earned but deferred so they can pay for retirement, college tuition or other expenses.”
Under the majority of AIG’s deferred pay plans, participants can only access deferred pay when they retire or leave the company. AIG said it is concerned that employees will leave AIG so they can obtain their deferred pay.
“This is a concern at a time when AIG is working to maintain the value of its businesses, whether those businesses are to be sold to repay AIG’s Federal Reserve loan or to be continued as part of a restructured AIG,” said Mr. Kaslow.
AIG said it plans to distribute close to $6 million to seven executives under the terms of the deferred compensation program. In a filing with the Securities and Exchange Commission, the company said that under its Senior Partners Plan there was an aggregate of $5.96 million in deferred pay, with six executives receiving $3.04 million of that pot.
At the top of the list is Jay S. Wintrob, executive vice president of retirement services, who will receive $1.9 million. Win J. Neuger, chief investment officer, will receive $607,953. David L. Herzog, the chief financial officer, will receive $371,422. The remaining four will receive a total of $161,860--ranging from more than $100,000 to $8,564.
Investors are wondering if Warren Buffett has lost his touch.
They are bailing out of Berkshire Hathaway Inc stock and have lost some confidence that the insurance and investment company, run by one of the world's most admired investors since 1965, can pay its debts.
Berkshire stock has lost close...
To read the entire article, please visit Insurance Journal.com at:
http://www.insurancejournal.com/news/national/2008/11/21/95715.htm